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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 1, 2014

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 0-20052

 

 

STEIN MART, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Florida   64-0466198

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

1200 Riverplace Blvd., Jacksonville, Florida   32207
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (904) 346-1500

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Name of each exchange on which registered:

Common Stock $.01 par value   The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: NONE

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨     No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨     No   x

The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of August 3, 2013 was $398,577,541. For purposes of this response, executive officers and directors are deemed to be affiliates of the registrant and the holdings by non-affiliates was computed as 28,029,363 shares. At March 21, 2014, the Registrant had issued and outstanding an aggregate of 44,831,004 shares of its common stock.

Documents Incorporated By Reference:

Portions of the Registrant’s Proxy Statement for its 2014 Annual Meeting of Shareholders are incorporated by reference in Part III.

 

 

 


Table of Contents

STEIN MART, INC.

TABLE OF CONTENTS

This report contains forward-looking statements which are subject to certain risks, uncertainties or assumptions and may be affected by certain factors, including but not limited to the specific factors discussed in Part I, Item 1A under “Risk Factors” and Item 3 under “Legal Proceedings”; in Part II, Item 5 under “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”; and Part II, Item 7 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Wherever used, the words “plan”, “expect”, “anticipate”, “believe”, “estimate” and similar expressions identify forward-looking statements. In addition, except for historical facts, all information provided in Part II, Item 7A, under “Quantitative and Qualitative Disclosures about Market Risk” should be considered forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of the Company may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements are based on beliefs and assumptions of the Company’s management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to publicly update or revise its forward-looking statements in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are no guarantees of performance.

 

ITEM NO.

        PAGE  
PART I   

1.

  

Business

     3   

1A.

  

Risk Factors

     5   

1B.

  

Unresolved Staff Comments

     9   

2.

  

Properties

     9   

3.

  

Legal Proceedings

     10   

4.

  

Mine Safety Disclosures

     10   
PART II   

5.

  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     10   

6.

  

Selected Consolidated Financial Data

     12   

7.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     12   

7A.

  

Quantitative and Qualitative Disclosures about Market Risk

     18   

8.

  

Financial Statements and Supplementary Data

     18   

9.

  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     18   

9A.

  

Controls and Procedures

     18   

9B.

  

Other Information

     21   
PART III   

10.

  

Directors, Executive Officers and Corporate Governance

     21   

11.

  

Executive Compensation

     21   

12.

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     21   

13.

  

Certain Relationships and Related Transactions, and Director Independence

     21   

14.

  

Principal Accounting Fees and Services

     22   
PART IV   

15.

  

Exhibits, Financial Statement Schedules

     22   

SIGNATURES

     23   

 

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PART I

 

ITEM 1. BUSINESS

OVERVIEW

Headquartered in Jacksonville, Florida, Stein Mart is a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store. Our focused assortment of merchandise features current season, moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions, all offered at prices competitive with off-price retail chains. Begun in the early 1900’s as a single store in Greenville, Mississippi, we operated 264 stores in 29 states and an Internet store as of February 1, 2014.

As used herein, the terms “we”, “our”, “us”, “Stein Mart” and the “Company” refer to Stein Mart, Inc., a Florida corporation, and its wholly-owned subsidiaries.

KEY STRATEGIC OBJECTIVES

Our mission is to provide current season, first-quality fashion apparel, shoes, accessories and home fashion merchandise at prices comparable to off-price retail chains in a convenient, attractive, easy-to-shop location. We believe our success and future growth will depend on the consistent execution of the following:

 

    Having a desirable, current season assortment of designer, brand name, exclusive and proprietary fashion apparel, accessories and home fashion merchandise,

 

    Sourcing a wide range of key brands and maintaining strong partnerships with the vendors representing those brands,

 

    Offering everyday low prices on fashion merchandise through buying methodologies and low cost operations,

 

    Attracting repeat and new customers through marketing and advertising programs,

 

    Having an attractive store appearance, appealing merchandise presentation and on-demand customer service, similar to a department or specialty store, and

 

    Maintaining current and opening new locations in regional, community and neighborhood shopping centers serving a more affluent customer.

TARGET CUSTOMER

Our target customer is a 35-55 year old woman who is both style conscious and value seeking. She is typically married and college educated. She may be multi-cultural, works at least part-time in a professional position and has above-average household income.

MERCHANDISING, PURCHASING AND PRICING

Our fashion assortment is driven primarily by seasonal fashion trends and a focus on name brand and designer merchandise complemented by a select program of private label and proprietary/exclusive merchandise. In 2013, approximately 10 percent of our sales were from private label or proprietary/exclusive merchandise. We merchandise our stores based on individual store selling characteristics, seasonal delivery fluctuations and regional preferences while maintaining consistent assortments from store to store.

Our merchants purchase products from approximately 1,200 vendors. One of our vendors accounted for approximately 5 percent of our total purchases during 2013. We buy a majority of our merchandise at the same time and from many of the same manufacturers as traditional department/specialty stores although we generally do not require the same level of front and back-end vendor concessions, such as advertising allowances, return privileges and markdown allowances, which are common and significant in the department store industry. As a result, we believe that our buyers are able to negotiate more favorable upfront pricing terms from vendors. We also purchase merchandise opportunistically when we believe a combination of the product and the price makes it a compelling addition to our assortment. In both instances, we reflect our savings in our pricing which passes on to our customers through everyday low pricing targeted to be competitive with off-price retail chains.

Our shoe department inventory is exclusively supplied and owned by DSW, Inc. (“DSW”). DSW’s buyers determine each season’s fashion footwear assortment. We operate the shoe department and receive a percentage of net revenue in accordance with a supply agreement (the “Supply Agreement”). Commissions from this leased department are included in Net sales reported in our Consolidated Statements of Income.

 

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The following table reflects the percentage of our sales by major merchandise category, including shoe department sales, for the fiscal years indicated:

 

     2013     2012     2011  

Ladies’ and Boutique apparel

     45     45     45

Ladies’ accessories

     11     12     13

Men’s

     20     20     20

Home

     13     12     11

Shoes

     7     8     8

Other

     4     3     3
  

 

 

   

 

 

   

 

 

 
     100     100     100
  

 

 

   

 

 

   

 

 

 

LOCATIONS, GROWTH STRATEGY AND STORE APPEARANCE

On February 1, 2014, we operated 264 stores in 29 states and an Internet store. Our stores are located in the Northeast, Midwest, Southeast, Texas and the Southwest. We are most fully concentrated in the Southeast and Texas where 183 of our stores are located. Most locations are in neighborhood, community and regional shopping centers frequented by a more affluent customer. Our optimal co-tenants within these shopping centers cater to a similar target customer and include highly-frequented retail formats such as other apparel retailers, higher-end grocers and restaurants. All Stein Mart locations, including the corporate headquarters and distribution centers, are leased.

We are selectively seeking properties that strengthen our portfolio of stores in current markets. We utilize regional tenant representative brokers to help us identify potential sites for new or relocated stores. New store decisions are supported by independent sales forecasts, and approved by a real estate committee made up of senior level executives.

Our typical store is currently approximately 35,000 gross square feet with a racetrack design, convenient centralized check-out, and individual dressing rooms. We display merchandise in lifestyle groupings of apparel and accessories, which we believe enables the customer to locate desired merchandise in a manner that encourages multiple purchases. We seek to create excitement in our stores through the continual flow of fashion merchandise, targeted sales promotions, store layout, merchandise presentation, and the quality, value and depth of our merchandise assortment. Our newer stores are approximately 32,000 gross square feet with the reduction from our past stores being in smaller backrooms that can be accommodated by our current distribution processes.

In 2010 we began selling selected merchandise offerings on the Internet. This expanded to additional product offerings for 2011 and 2012. During 2012, we temporarily ceased selling merchandise on the Internet as we realized we needed a world-class platform provider to maximize this important channel of business for us. We relaunched the Internet site during the third quarter of 2013. Internet sales in 2013, 2012 and 2011 amounted to less than 1% of our total sales.

CUSTOMER SERVICE

Our stores offer many services typically found in better department or specialty stores, such as merchandise locator service, a Preferred Customer program, co-branded and private label credit card programs, and electronic gift cards. Each store is staffed with a number of sales associates to provide on-demand customer service. Our stores have their own Boutique , generally staffed by specially-recruited associates who typically work one day a week. We believe this staffing approach adds credibility and fashion integrity to the department.

MARKETING

Our marketing efforts are focused on deepening our relationship with our best customers in order to increase our share of her spending. We engage in periodic market research, including accessing our proprietary customer panel, to identify how best to reach each of these audiences and, in consultation with our outside advertising and direct-marketing agencies, we adjust our marketing focus accordingly.

Our advertising stresses upscale fashion merchandise at discount prices. We utilize a combination of full-color circulars (both inserted in newspapers and mailed directly to homes), direct mail, newspaper run of press (ROP) advertising, and email to distribute our sales promotion messages. To reach a broader audience, increase brand awareness and drive promotional events, we use both television and radio advertising. We utilize digital media including online advertising and have a presence on social networking sites, including Facebook and Twitter.

Our Preferred Customer Card program is an important marketing tool. Preferred Customer Card customers receive preview copies of select circulars mailed to their home, members only shopping days, birthday discounts and special email announcements. This program provides useful database information regarding customer preferences, habits and advertising receptivity. All Stein Mart credit card holders are members of our Preferred Customer Card program.

 

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Stein Mart Credit Card holders (co-branded MasterCard and private label cards) receive advance notice of sales events and special promotional offers including Extra Savings Events which occur periodically throughout the year and provide incremental savings on purchases made with the Stein Mart credit card during these events.

Stein Mart co-branded credit card holders also participate in the credit card rewards program, which provides for an incentive in the form of reward certificates based on their cumulative purchases made on the credit card.

The Stein Mart Internet site, www.steinmart.com , was relaunched during the third quarter of 2013. The website now allows customers to make online purchases of much of the same product offered in our stores along with some online exclusive products. The website also provides information for customers regarding store locations, brands, products and selected sales promotion activity. Visitors to the website may apply for our credit card, sign up to be Preferred Customers, sign up for email notifications, and purchase gift cards.

COMPETITION

Our primary competitors are department and specialty stores, as well as conventional off-price retail chains. From our customer’s perspective, we believe we differentiate ourselves from department stores and specialty stores due to our (i) everyday low pricing, (ii) convenient locations in shopping centers, and (iii) assortments that are more edited than department stores and more varied than specialty stores. We believe we differentiate ourselves from typical off-price retail chains by offering (i) primarily current season first-quality merchandise carried by better department or specialty stores, (ii) a stronger merchandising “statement,” consistently offering more depth of color and size in individual stock-keeping units, (iii) merchandise presentation and customer service more comparable to upscale retailers and (iv) competitive price levels.

DISTRIBUTION

Our logistics network (“supply chain”) consists of consolidation centers (“CC’s”) located in the Atlanta, Los Angeles and New Jersey areas, and store distribution centers (“SDC’s”) located in the Atlanta, Dallas, and Los Angeles areas. Approximately 75% of the vendor shipments are aggregated at the CC’s and then shipped to the SDC’s with the remaining 25% moving direct from vendors to SDC’s. The SDC’s receive and check the merchandise to ensure it is floor ready for our stores. The SDCs are automated and virtually all of our vendors are now electronic data interchange (“EDI”) capable so we are able to cross-dock a high percentage of our receipts. Store deliveries are made by contract carriers to the stores once or twice a week depending on location and store volume. During fiscal 2013, we transitioned two of the three CC’s and all three SDC’s from third-party to company-operated facilities. The New Jersey CC is the only facility managed by a third-party logistics provider.

EMPLOYEES

As of February 1, 2014, our work force consisted of approximately 11,000 employees (5,300 40-hour equivalent employees). Each of our stores employs an average of 40 persons. The number of employees fluctuates during the year based on the particular selling season.

SEASONALITY

Our business is seasonal. Sales and profitability are historically higher in the first and fourth quarters of the fiscal year, which include the spring and holiday seasons.

TRADEMARKS

We own the federally registered trademark Stein Mart®, together with a number of other marks used in conjunction with our private label merchandise program. Management believes that our trademarks are important, but, with the exception of Stein Mart®, not critical to our merchandising strategy.

AVAILABLE INFORMATION

Copies of our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those filings are available, free of charge, on our investor relations website at http://ir.steinmart.com (click on “SEC Filings”). Also available free of charge on the investor relations website are the charters for the Audit Committee, Compensation Committee, Corporate Governance Committee, and Strategic Planning Committee, as well as the Code of Conduct, Corporate Governance Guidelines and Articles of Incorporation (click on “Charters & Documents”). Paper copies of these items are available free of charge upon request by writing Stein Mart, Inc., 1200 Riverplace Boulevard, Jacksonville, FL 32207, Attention: Shareholder Relations.

 

ITEM 1A. RISK FACTORS

Our results of operations and financial condition can be adversely affected by numerous risks and uncertainties. In evaluating the Company, the risks and uncertainties described below and the matters described in “Forward-Looking Statements” should be considered carefully. Should any of these risks actually materialize, our business, financial condition, and future prospects could be negatively impacted.

 

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Our sales and operating results are affected by consumer sensitivity to economic conditions . The retail apparel business is dependent upon consumer spending and, as a fashion retailer, we rely on the expenditure of discretionary income for most, if not all, of our sales. Economic factors impacting consumer confidence and levels of consumer spending include levels of employment, the housing market, prevailing interest rates, tax policies, personal bankruptcies, energy costs and availability and cost of credit. Consumer confidence is also affected by both domestic and international events. Deterioration in the level of consumer spending could have a material adverse effect on our results of operations.

We face intense competition in the retail industry . We face intense competition for customers from department stores, specialty stores, regional and national off-price retail chains and Internet and mail-order retailers. Many of these competitors are larger and have significantly greater financial and marketing resources than we do. In addition, many department stores and other competitors have become more promotional and have reduced their price points. Certain department stores and certain of our vendors have opened outlet stores which offer merchandise at prices that are competitive with ours. Many of our competitors have significant Internet sales. While we maintain an Internet site and began selling merchandise on the Internet in 2013, our Internet sales currently comprise an insignificant portion of our total sales. If we fail to successfully compete, our profitability and results of operations could be harmed.

Unanticipated changes in fashion trends and changing consumer preferences may adversely affect our sales . Our success depends in part upon our ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner. Although we attempt to stay abreast of the fashion tastes of our customers and provide merchandise that satisfies customer demand, fashion trends can change rapidly and we cannot assure that we will accurately anticipate shifts in fashion trends and adjust our merchandise mix to appeal to changing consumer tastes in a timely manner. If we misjudge the market for our products or are unsuccessful in responding to changes in fashion trends or in market demand, we could experience insufficient inventory levels and missed opportunities, or excess inventory levels and higher markdowns, either of which would have a material adverse effect on our financial condition and results of operations.

Our advertising, marketing and promotional strategies may be ineffective . Our profitability and results of operations may be materially affected by the effectiveness and efficiency of our marketing expenditures and our ability to select the right markets and media in which to advertise. In particular, we may not be successful in our efforts to create greater awareness of our stores and promotions, identify the most effective and efficient level of spending in each market and specific media vehicle and determine the appropriate creative message and media mix for our advertising, marketing and promotional expenditures. While we utilize different types of media, daily newspapers are an important delivery vehicle for press advertising and circular insertions. The newspaper business is under increasing economic pressure, and the demise of certain newspapers would jeopardize an important distribution method for our advertising. As readers shift away from newspapers, our success will depend more on our effective use of other forms of media for our advertising, marketing and promotional strategies. Our planned marketing expenditures may not result in increased revenues. In addition, if we are not able to manage our marketing expenditures on a cost-effective basis, our profitability and results of operations could be materially adversely affected.

We may be unable to raise additional capital, if needed, or to raise capital on favorable terms . If our existing cash, cash generated from operations and funds available under our revolving credit agreement were insufficient to fund our future operations, including capital expenditures, or repay debt when it becomes due, we may need to raise additional funds through public or private equity or debt financing. If unfavorable capital or credit market conditions exist if and when we were to seek additional financing, we may not be able to raise sufficient capital on favorable terms or on a timely basis, if at all. Failure to obtain capital on acceptable terms when required could have a material adverse effect on our business including an inability to fund new growth and other capital expenditures.

We may be unable to negotiate acceptable lease terms with current and potential landlords . Our growth and success depends in part on our ability to renew and enter into new leases for successful stores. There is no assurance that we will be able to re-negotiate leases at similar or satisfactory terms at the end of the lease, and we could be forced to move or exit trade areas if another favorable arrangement cannot be made. There is also no assurance that we will be able to negotiate satisfactory terms on new or replacement stores.

We may not be able to exit under-performing stores on acceptable terms . As part of our strategy, we close certain under-performing stores, generally based on the lack of store profitability. Such closures subject us to costs, including lease termination payments and the write-down of leasehold improvements, equipment, furniture, fixtures and inventory. For early terminations, we may remain liable for future lease obligations which could adversely affect our profitability and results of operations.

Because of our focus on keeping our inventory at the forefront of fashion trends, extreme and/or unseasonable weather conditions could force us to have higher inventory markdowns . Our business is susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the fall season or cool weather during the spring season could render a portion of our inventory incompatible with those unseasonable conditions. Prolonged unseasonable weather conditions could have a material adverse effect on our business, financial condition and results of operations. In addition, hurricanes or other extreme weather conditions over a prolonged period might make it difficult for our customers to travel to our stores, which could have a material adverse effect on our business, financial condition and results of operations.

 

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A lack of adequate sources of merchandise at acceptable prices may adversely affect our sales . Our business is dependent to a significant degree upon our ability to purchase fashion and brand name merchandise, and to do so at acceptable wholesale prices. We continuously seek out buying opportunities and compete for these opportunities with other retailers. In the event of a further decrease in retail sales and the resulting pressure on manufacturers, the opportunities to purchase merchandise could become limited by the consolidation or demise of merchandise vendors. Our ability to obtain merchandise may also depend on manufacturers’ ability to obtain vendor financing through banks and factoring companies. To the extent they are unable to secure sufficient credit, they may not be able to sell to us at acceptable terms. Although we do not depend on any single vendor or group of vendors and believe we can successfully compete in seeking out new vendors, the loss of key vendors could make it difficult for us to acquire sufficient quantities and an appropriate mix of merchandise, and to do so at acceptable prices which could have a material adverse effect on our results of operations.

Increases in the price of merchandise could increase our costs which could negatively impact our margins . The raw materials used to manufacture our goods are subject to availability constraints and price volatility caused by high demand for fabrics, supply conditions, government regulations, and other unpredictable factors. Our procurement of goods and services is subject to the effects of price increases which we may or may not be able to pass through to our customers. Additionally, procurement of our merchandise is subject to increases in demand for, or the price of, raw materials, services and labor. All of these factors may affect our ability to access suitable merchandise on acceptable terms, are beyond our control and could negatively impact our margins.

We are dependent on certain key personnel and our ability to attract and retain qualified employees . Our business is dependent on attracting and retaining quality employees. Many of our employees are in entry level or part-time positions with historically high rates of turnover. Our ability to meet our labor needs while controlling the costs associated with hiring and training new employees is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. Our success also depends to a significant extent upon the efforts and abilities of our senior executives. Competition for key executives in the retail industry is intense, and our operations could be adversely affected if we cannot retain our key executives. Any circumstances that adversely impact our ability to attract, train, develop and retain quality individuals throughout the organization could adversely affect our business and results of operations.

Increases in the cost of employee benefits could impact our financial results and cash flow. Our expenses relating to employee health benefits are significant. Unfavorable changes in the cost of such benefits could impact our financial results and cash flow. Healthcare costs have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform could result in significant changes to the U.S. healthcare system. We are not able at this time to determine the impact that healthcare reform could have on the cost of our employee health benefits.

The seasonality of our business and fluctuations in sales and operating results could cause volatility in the price of our common stock . Our business is seasonal with our highest sales occurring in the first and fourth quarters, which include the spring and holiday seasons. Our annual operating results depend significantly upon sales generated during these quarters, and any factor that negatively impacts these selling seasons could have a material adverse effect on our results of operations for the entire year. Comparable store sales and quarterly operating results have fluctuated in the past and are expected to continue to fluctuate in the future. Our stock price is influenced by these financial fluctuations, as well as other factors, including economic conditions, timing of promotional events, actions of competitors, inventory management, changes in fashion trends and unseasonable weather conditions.

We now perform a majority of our own distribution functions and, if we experience any business interruptions or disruptions in the distribution process, our profitability could be materially impacted. We have transitioned a majority of our distribution functions away from third parties to three distribution centers which we lease and operate. We may not anticipate, respond adequately to or control all of the challenges of operating our distribution centers. In the event that the orderly receipt and distribution of merchandise is disrupted, impeding the timeliness or fulfillment quality of the products being distributed, or any of our distribution centers becomes inaccessible, or is otherwise not fully usable, it would have a material adverse effect on our ability to distribute our products, which in turn would have a material adverse effect on our sales, profitability, financial condition and operating performance.

We are subject to risks associated with importing merchandise from other countries. Much of the fashion and brand name merchandise we acquire, either directly or through vendors, is sourced from various foreign countries. Political or financial instability, terrorism, trade restrictions, tariffs, currency exchange rates, raw material shortages, disruptions, strikes, work stoppages and other factors beyond our control could affect the availability of our merchandise inventory. Additionally, while our internal policies require our vendors and the third parties from whom they source merchandise to comply with all applicable laws and regulations, we do not have the ability to control our vendors, their manufacturers or their employment and business practices. The failure of our vendors and their suppliers to comply with applicable laws, or the use of labor practices which deviate from those which generally are considered ethical in the United States, could affect the availability and price of merchandise, damage our reputation or otherwise have a material adverse effect on our sales, profitability, financial condition and operating performance.

 

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Failure of information technology could disrupt operations and harm our business . The operation of our business and the effective execution of our merchandising and distribution strategies is dependent in large measure on the effectiveness of our information technology systems. The reliability and capacity of our information technology systems are critical and any disruptions affecting our information technology systems may have a material adverse impact on our business.

Unauthorized disclosure of sensitive or confidential customer or employee information could severely damage our reputation, expose us to risks of litigation and liability, disrupt our operations and harm our business . As part of our normal course of business, we collect, process and retain sensitive and confidential customer and employee information and we process customer credit card and check information. In addition, we accept and transmit credit card applications through our retail locations pursuant to our credit card agreement with GE Capital Retail Bank (“GE”). We also rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential information. The systems we utilize for credit card transactions, as well as the technology utilized in such transactions, are determined and controlled by the credit card industry. Recent breaches of security measures at major retailers have resulted in the theft and dissemination of the confidential information of millions of customers throughout the United States. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, such as GE, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information, whether by us or our service providers, could severely damage our reputation, expose us to risks of litigation and liability, disrupt our operations and harm our business.

We rely on a single supplier for shoes sold by our shoe department and disruptions with that supplier could materially affect our reputation, operations or financial results. We have an agreement with DSW to be the exclusive supplier of shoes sold in our shoe departments. We rely on DSW to determine the quantity and mix of shoes to be sold, the prices at which such items are to be sold and the fulfillment and continuing supply of inventory. If DSW was unable to provide us with sufficient amounts of inventory or inventory that meets the fashion preferences of our customers or if DSW was unable to continue being our supplier of shoes, we may attract fewer customers and experience a loss in net sales, which could materially affect our reputation, operations or financial results.

We have engaged a single third-party provider to create, operate and maintain our e-commerce website operations, and disruptions with the provider or in the services it provides to us could materially affect our reputation, operations or financial results. We have contracted with a single third party to create, operate and host our e-commerce website and provide related order fulfillment and customer service. We will rely on that party’s operational, privacy and security procedures and controls to operate and host our e-commerce business. Failure by such third party to adequately service these aspects of our e-commerce business could result in a prolonged disruption that affects our customers’ ability to utilize our website or receive product in a timely manner. As a result, we may lose customer sales and/or experience increased costs, which could materially affect our reputation, operations or financial results. In addition, the e-commerce operations also involve other risks that could have an impact on our results of operations including but not limited to diversion of sales from our physical stores, liability for online content, credit card fraud and risks related to the failure of the computer systems that operate the website and its related support systems, any of which could have a material adverse effect on our business.

Acts or threats of terrorism, violence or unfavorable political conditions could harm our business . Acts of terrorism or war may disrupt commerce and undermine consumer confidence, which could negatively impact our sales revenue by causing consumer spending to decline. Also, an act of terrorism or war, or the threat thereof, could negatively impact our business by interfering with our ability to obtain merchandise from vendors. Inability to obtain merchandise from our vendors or substitute suppliers at similar costs in a timely manner could have a material adverse effect on our operating results and financial condition.

Our failure to adequately protect our trademark Stein Mart®, and, to a lesser extent, the various other marks we use in conjunction with our private label merchandise program, may have a negative impact on our brand image . We believe that our trademark Stein Mart® and, to a lesser extent, the various other marks that we use in connection with our private label merchandise program, are important to us because we feel that these brands have characteristics unique to our business. We have obtained a federal registration of the Stein Mart® trademark and various other trademarks in the United States. We cannot assure you that the registrations that we have obtained will prevent the imitation of our business or infringement of our intellectual property rights by others. If we are unable to protect our brand or our brand becomes associated with lesser characteristics or otherwise carries a negative connotation, our brand image, and consequently the results of our operations, could be materially adversely affected.

Failure to comply with legal and regulatory requirements may adversely impact our business and results of operations. Our business is subject to many legal and regulatory requirements, including, among others, employment, trade, healthcare, tax, securities and privacy laws and regulations. Our policies, procedures and internal controls are designed to help us comply with all applicable laws; however, the current high level of regulatory reform across many different areas has led, and may continue to lead, to substantial new

 

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regulations and disclosure obligations. Additional legal or regulatory requirements or more stringent interpretations of applicable requirements could increase the complexity of the regulatory environment in which we operate and the cost of compliance. Failure to comply with the various laws and regulations, as well as changes in laws and regulations, could have an adverse impact on our reputation, operations or financial results.

The SEC Investigation could materially and adversely affect our business, our financial condition and results of operations . On July 24, 2013, the SEC informed the Company that it was conducting an investigation of the Company and made a request for voluntary production of documents and information. Based upon the request, the Company believes the investigation is focused on the Company’s recent restatement of prior financial statements and the Company’s change in auditors. The Company is cooperating fully with the SEC in this matter. The Company is unable to predict what action, if any, might be taken in the future by the SEC as a result of the matters that are the subject of the investigation or what impact the cost of responding to the investigation might have on the Company’s financial condition or results of operations. The Company has not established any provision for losses in respect of this matter. A protracted investigation could impose substantial costs and distractions, regardless of its outcome. There can be no assurance that any final resolution of this investigation will not have a material and adverse effect on the Company’s financial condition and results of operations.

We previously identified and remediated material weaknesses in our internal control over financial reporting which may, if our remediation measures are insufficient, result in additional material misstatements in our financial statements . Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. In prior fiscal years, our management identified certain material weaknesses in our internal control over financial reporting. We believe all such material weaknesses have been fully addressed by the remediation measures put in place during the 2013 fiscal year. However, if our remediation measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our financial statements may contain material misstatements and we could be required to restate our financial results.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2. PROPERTIES

Stores

The following table summarizes our store count activity during the last three fiscal years:

 

     2013     2012     2011  

Stores at beginning of year

     263        262        264   

Stores opened during the year

     4        6        3   

Stores closed during the year

     (3     (5     (5
  

 

 

   

 

 

   

 

 

 

Stores at end of year

     264        263        262   
  

 

 

   

 

 

   

 

 

 

As of February 1, 2014, our stores operated in the following 29 states:

 

State

   Number of Stores     

State

   Number of Stores  

Alabama

     9      

Missouri

     3   

Arizona

     10      

Nevada

     4   

Arkansas

     2      

New Jersey

     5   

California

     20      

New York

     3   

Colorado

     3      

North Carolina

     20   

Florida

     42      

Ohio

     8   

Georgia

     13      

Oklahoma

     4   

Illinois

     4      

Pennsylvania

     4   

Indiana

     7      

South Carolina

     12   

Kansas

     2      

Tennessee

     13   

Kentucky

     2      

Texas

     44   

Louisiana

     8      

Utah

     1   

Massachusetts

     1      

Virginia

     12   

Michigan

     1      

Wisconsin

     1   

Mississippi

     6         

We lease all of our store locations, generally for 10 years with options to extend the lease term for two or more 5-year periods. We have the right to terminate some of these leases before the expiration date under specified circumstances and some with specified termination payments. Most of our leases provide for fixed minimum rents, as well as contingent amounts based on a percentage of sales in excess of specified levels. We also lease our 109,000 square foot corporate headquarters in Jacksonville, Florida.

 

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As of February 1, 2014, we leased the following additional facilities:

 

Facility

  

Location

   Square Feet  

Distribution Center/Warehouse

   Lithia Springs, Georgia      202,000   

Distribution Centers:

   Grand Prairie, Texas      75,000   
   Ontario, California      70,000   

As of February 1, 2014, the current terms of our 264 stores (assuming we exercise all lease renewal options) were as follows:

 

     Number of Leases
Expiring
 

Years Lease Term Expire

  

2014

     2   

2015-2018

     13   

2019-2023

     39   

2024-2028

     74   

2029 and later

     136   

 

ITEM 3. LEGAL PROCEEDINGS

On July 24, 2013, the Securities and Exchange Commission (the “SEC”) informed the Company that it was conducting an investigation of the Company and made a request for voluntary production of documents and information. Based upon the request, the Company believes the investigation is focused on the Company’s recent restatement of prior financial statements and the Company’s change in auditors. The Company is cooperating fully with the SEC in this matter.

In addition, we are involved in various routine legal proceedings incidental to the conduct of our business. Management, based upon the advice of outside legal counsel, does not believe that any of these legal proceedings will have a material adverse effect on our financial condition, results of operations or cash flows.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price and Related Matters

Our common stock trades on The NASDAQ Global Select Market (“NASDAQ”) under the trading symbol “SMRT”. On March 21, 2014, there were 875 shareholders of record. The following table sets forth the high and low sales prices of our common stock per NASDAQ and our quarterly cash dividends per common share for each quarter in the years ended February 1, 2014 and February 2, 2013:

 

     2013      2012  
     High      Low      Dividend      High      Low      Dividend  

First Quarter

   $ 8.92       $ 7.44       $ 0.00       $ 7.58       $ 6.02       $ 0.00   

Second Quarter

     15.21         8.85         0.05         8.29         6.05         0.00   

Third Quarter

     15.50         11.95         0.05         9.34         7.58         0.00   

Fourth Quarter

     16.17         12.32         0.05         8.88         6.56         1.00   

Dividends

On June 18, 2013, the Board of Directors approved the initiation of a regular quarterly dividend of $0.05 per share or $0.20 on an annual basis. In 2013, we paid a quarterly dividend of $0.05 per common share on July 19, 2013, October 18, 2013 and January 17, 2014. In 2012, we paid a special cash dividend of $1.00 per common share on December 24, 2012.

On March 12, 2014, the Company announced that its Board of Directors declared a quarterly dividend of $0.05 per common share which will be paid on April 18, 2014 to shareholders of record on April 4, 2014.

 

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Issuer Purchases of Equity Securities

The following table provides information regarding repurchases of our common stock during the quarter ended February 1, 2014:

 

ISSUER PURCHASES OF EQUITY SECURITIES  

Period

  

Total

number

of shares

purchased

    

Average

price

paid per

share

    

Total number of

shares purchased

as part of publicly

announced plans

or programs (1)

    

Maximum number

of shares that may

yet be purchased

under the plans or

programs (1)

 

November 3, 2013 - November 30, 2013

     733       $ 15.37         733         871,273   

December 1, 2013 - January 4, 2014

     511         13.25         511         870,762   

January 5, 2014 - February 1, 2014

     67,571         12.63         67,571         803,191   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     68,815       $ 12.66         68,815         803,191   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Our Open Market Repurchase Program is conducted pursuant to authorizations made from time to time by our Board of Directors. For the quarter ended February 1, 2014, all shares purchased related to withholding taxes due on the vesting of employee stock awards.

Performance Graph

The following graph compares the cumulative five-year shareholder return on our common stock with the cumulative total return to the NASDAQ Composite Index and the S&P 500 Apparel Retail Index. The comparison assumes $100 was invested at the beginning of the five year period in Stein Mart, Inc. stock and in each of the indices shown and assumes reinvestment of any dividends.

 

 

LOGO

 

     1/31/2009      1/30/2010      1/29/2011      1/28/2012      2/2/2013      2/1/2014  

Stein Mart, Inc.

   $ 100.00       $ 675.2       $ 717.1       $ 668.0       $ 894.3       $ 1,267.6   

NASDAQ Composite

     100.00         146.7         185.5         198.0         226.8         296.3   

S&P 500 Apparel Retail

     100.00         197.7         258.9         341.4         460.2         533.0   

* * * * *

The stock performance graph should not be deemed filed or incorporated by reference into any other filings made by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the stock performance graph by reference in another filing.

 

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in Thousands, Except Per Share and Per Square Foot Data)

Consolidated Statement of Operations Data:

 

                            (Unaudited)  
    2013     2012(1)     2011     2010     2009  

Net sales

  $ 1,263,571      $ 1,232,366      $ 1,177,951      $ 1,201,081      $ 1,235,958   

Cost of merchandise sold

    896,218        889,736        858,335        868,415        882,716   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    367,353        342,630        319,616        332,666        353,242   

Selling, general and administrative expenses

    326,520        306,407        287,184        277,330        319,317   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    40,833        36,223        32,432        55,336        33,925   

Interest expense, net

    265        225        286        338        650   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    40,568        35,998        32,146        54,998        33,275   

Income tax expense (benefit)

    15,013        10,971        12,215        (1,688     10,869   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 25,555      $ 25,027      $ 19,931      $ 56,686      $ 22,406   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic income per share

  $ 0.58      $ 0.57      $ 0.45      $ 1.28      $ 0.52   

Diluted income per share

  $ 0.57      $ 0.57      $ 0.44      $ 1.26      $ 0.51   

Cash dividends paid per share

  $ 0.15      $ 1.00      $ —        $ 0.50      $ —     

Consolidated Operating Data:

         

Stores open at end of period

    264        263        262        264        267   

Sales per store including gross shoe department (2)(4)

  $ 5,085      $ 4,949      $ 4,793      $ 4,813      $ 4,845   

Sales per store including net shoe department (3)(4)

  $ 4,783      $ 4,652      $ 4,500      $ 4,537      $ 4,581   

Sales per square foot including gross shoe department (2)(4)

  $ 173      $ 167      $ 161      $ 161      $ 160   

Comparable store net sales increase (decrease) (5)

    3.7     2.7     (1.1 )%      (1.8 )%      (5.6 )% 

Consolidated Balance Sheet Data:

         

Working capital

  $ 160,958      $ 136,352      $ 172,898      $ 171,038      $ 153,356   

Total assets

    524,258        491,709        479,583        442,023        402,434   

Capital lease obligations/long-term

    —          —          1,480        —          —     

Total shareholders’ equity

    264,401        234,034        249,671        237,481        197,986   

 

(1) 2012 is a 53-week year; all others are 52-week years.
(2) These sales per store and sales per square foot amounts include gross shoe department sales, which are reported net in our net sales. Sales per store is calculated by dividing (a) total sales including shoe department gross sales for stores open at the end of the year, excluding stores open for less than 12-months by (b) the number of stores open at the end of such period, exclusive of stores open for less than 12 months. Sales per square foot includes shoe department gross sales and selling space and excludes administrative, receiving and storage areas. Internet sales are excluded from the calculation.
(3) These sales per store amounts include shoe department commissions, which are included in our net sales. Sales per store is calculated by dividing (a) total sales including shoe department net sales for stores open at the end of the year, excluding stores open for less than 12-months by (b) the number of stores open at the end of such period, exclusive of stores open for less than 12 months. Internet sales are excluded from the calculation.
(4) Sales per store and sales per square foot for 2012 has been adjusted to exclude the 53 rd week.
(5) Comparable store sales information for a period reflects stores open throughout that period and for the same 52-week period in the prior year and Internet sales, except for the year 2012. Comparable store net sales increase for 2012 compares sales for the 52 weeks ended January 26, 2013 to the 52 weeks ended January 28, 2012. Comparable store sales does not include leased department commissions.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K. The following discussion and analysis contains forward-looking statements which involve risks and uncertainties, and our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the table of contents.

Overview

We are a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices comparable to off-price retail chains. Our focused assortment of merchandise features current season moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions.

2013 Highlights

Comparable store sales for 2013 increased 3.7 percent compared to 2012 and total sales increased 2.5 percent. Net income for 2013 was $25.6 million or $0.57 per diluted share compared to $25.0 million or $0.57 per diluted share for 2012.

 

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Cash and cash equivalents at year-end 2013 was $66.9 million compared to $67.2 million at year-end 2012. Our financial position remains strong as the 2013 balance reflects our increased investment in inventories, capital expenditures of $36.3 million and payment of three quarterly dividends ($0.05 per share) totaling $6.7 million during 2013. We had no direct borrowings on our revolving credit agreement as of February 1, 2014 and February 2, 2013.

2014 Outlook

For 2014, we expect sales increases to leverage against our efficient expense structure to continue driving earnings, particularly as we add stores.

We expect the following factors to influence our business in 2014:

 

    Current 2014 plans are to open 10 stores, relocate six stores to better locations in their respective markets and close two stores.

 

    The gross profit rate is expected to be slightly less than the reported 2013 rate of 29.1 percent.

 

    Selling, general and administrative (“SG&A”) expenses are expected to increase approximately $10 million from the $326.5 million reported in 2013 and include the following items:

 

    SG&A is expected to be approximately $5 million higher as a result of new and relocated stores, including higher pre-opening costs.

 

    Depreciation will increase by approximately $2 million.

 

    E-commerce is expected to incur a loss of approximately $2 million in 2014.

 

    The effective tax rate for the year is estimated to be approximately 39.0 percent.

 

    Capital expenditures for 2014 are expected to be approximately $38 million, including $13 million for information systems, $13 million for existing stores and $12 million for new and relocated stores.

Change in Accounting Estimate

During the fourth quarter of 2013, we refined our estimation of the buying and distribution costs allocated to inventories. This change lowered the percentage of expenses allocated to inventory purchases. The decrease in inventories resulted in a $5.0 million pretax non-cash charge ($3.1 million after-tax or $0.07 per diluted share), comprised of a $15.0 million increase in SG&A expenses and a $10.0 million increase in gross profit.

Results of Operations

The following table sets forth each line item of the Consolidated Statements of Income expressed as a percentage of net sales:

 

     2013     2012     2011  

Net sales

     100.0     100.0     100.0

Cost of merchandise sold

     70.9     72.2     72.9
  

 

 

   

 

 

   

 

 

 

Gross profit

     29.1     27.8     27.1

Selling, general and administrative expenses

     25.9     24.9     24.4
  

 

 

   

 

 

   

 

 

 

Operating income

     3.2     2.9     2.7

Interest expense, net

     0.0     0.0     0.0
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     3.2     2.9     2.7

Income tax expense

     1.2     0.9     1.0
  

 

 

   

 

 

   

 

 

 

Net income

     2.0     2.0     1.7
  

 

 

   

 

 

   

 

 

 

2013 Compared to 2012

Net Sales. The following table provides net sales for fiscal 2013 compared to fiscal 2012 (dollar amounts in thousands):

 

     2013      2012      Increase  

Net sales

   $ 1,263,571       $ 1,232,366       $ 31,205   

Sales percent increase:

        

Total net sales

           2.5

Comparable store sales

           3.7

The comparable store sales increase was driven by increases in average units per transaction and average unit retail prices, partially offset by a decrease in the number of transactions. The total net sales increase of 2.5% is less than the comparable store sales increase of 3.7% as a result of the 53 rd week in 2012 which had sales of $15.8 million.

 

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We believe our customers responded positively to our improved merchandise assortment. An expanded color palette, an increased assortment of designer and national brands throughout the store, and our home department continue to drive sales.

Gross Profit. The following table compares gross profit for fiscal 2013 to fiscal 2012 (dollar amounts in thousands):

 

     2013     2012     Increase  

Gross profit

   $ 367,353      $ 342,630      $ 24,723   

Percentage of net sales

     29.1     27.8     1.3

Gross profit as a percent of sales for 2013 increased from 2012 primarily due to the $10.0 million impact of the change in accounting estimate to refine our estimation of the buying and distribution costs allocated to inventories as well as higher markup.

Selling, General and Administrative Expenses. The following table compares SG&A expenses for fiscal 2013 to fiscal 2012 (dollar amounts in thousands):

 

     2013     2012     Increase  

Selling, general and administrative expenses

   $ 326,520      $ 306,407      $ 20,113   

Percentage of net sales

     25.9     24.9     1.0

SG&A expenses increased primarily due to the $15.0 million impact of the change in accounting estimate to refine our estimation of buying and distribution costs allocated to inventories. In addition to the impact of the change in accounting estimate, the increase in SG&A also resulted from $3.9 million increase in depreciation expense, $2.5 million supply chain and e-commerce start-up costs, $2.1 million decrease in breakage income on unused gift cards and merchandise return cards, and higher compensation costs. Depreciation expense increased as a result of investments in capital expenditures. The decrease in breakage income on unused gift cards and merchandise return cards was primarily the result of an update in our breakage assumptions during the second quarter of 2012. These increases were partially offset by $2.1 million lower investigation and related fees as well as lower healthcare costs resulting from favorable claims experience.

Income Taxes. The following table compares income tax expense for fiscal 2013 to fiscal 2012 (dollar amounts in thousands):

 

     2013     2012     Increase  

Income tax expense

   $ 15,013      $ 10,971      $ 4,042   

Effective tax rate (“ETR”)

     37.0     30.5     6.5

Income tax expense for 2012 was favorably impacted by non-taxable income related to the elimination of post-retirement life insurance benefit of $6.4 million.

2012 Compared to 2011

Net Sales. The following table provides net sales for fiscal 2012 compared to fiscal 2011 (dollar amounts in thousands):

 

     2012      2011      Increase  

Net sales

   $ 1,232,366       $ 1,177,951       $ 54,415   

Sales percent increase:

        

Total net sales

           4.6

Comparable store sales

           2.7

The comparable store sales increase was driven by increases in the number of transactions, the average units per transaction, and average unit retail prices. Sales for 2012 include a 53 rd week with sales of $15.8 million.

Gross Profit. The following table compares gross profit for fiscal 2012 to fiscal 2011 (dollar amounts in thousands):

 

     2012     2011     Increase  

Gross profit

   $ 342,630      $ 319,616      $ 23,014   

Percentage of net sales

     27.8     27.1     0.7

Gross profit as a percent of sales for 2012 increased from 2011 primarily due to lower markdowns resulting from our strategy of reducing coupons applicable to our regular-priced merchandise.

 

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Selling, General and Administrative Expenses. The following table compares SG&A expenses for fiscal 2012 to fiscal 2011 (dollar amounts in thousands):

 

     2012     2011     Increase  

Selling, general and administrative expenses

   $ 306,407      $ 287,184      $ 19,223   

Percentage of net sales

     24.9     24.4     0.5

SG&A expenses increased primarily due to a $9.4 million increase in corporate expenses, $5.2 million increase in store expenses, $5.3 million increase in depreciation expense, $4.1 million decrease in credit card program income and a $1.0 million decrease in other income, partially offset by a $3.7 million decrease in advertising expenses and $2.1 million increase in breakage income on unused gift cards and merchandise return cards.

Corporate expenses increased primarily due to $4.0 million in legal and accounting costs related to the restatement as well as higher compensation and benefit costs. Store expenses increased primarily due to higher compensation costs, partially offset by a decrease in credit card interchange fees. Credit card program income decreased primarily due to a performance-based incentive from GE Capital Retail Bank (“GE”) related to the final program year of our prior co-brand agreement received in 2011 as well as the elimination of new account fees when we entered into the Amended and Restated Co-Brand and Private Label Credit Card Consumer Program Agreement with GE in October 2011. Advertising expenses decreased due to the reduction of certain media usage. The increase in breakage income on unused gift cards and merchandise return cards is a result of an update in our breakage assumptions during the second quarter of 2012.

Income Taxes. The following table compares income tax expense for fiscal 2012 to fiscal 2011 (dollar amounts in thousands):

 

     2012     2011     Decrease  

Income tax expense

   $ 10,971      $ 12,215      $ (1,244

Effective tax rate

     30.5     38.0     (7.5 )% 

Income tax expense for 2012 was favorably impacted by non-taxable income related to the elimination of post-retirement life insurance benefit of $6.4 million.

Liquidity and Capital Resources

Our primary source of liquidity is the sale of merchandise inventories. Capital requirements and working capital needs are funded through a combination of internally generated funds, available cash, credit terms from vendors and our revolving credit facility. Working capital is needed to support store inventories and capital investments for new store openings and to maintain existing stores. Historically, our working capital needs are lowest in the first quarter and highest at the end of the third quarter and beginning of the fourth quarter as we build inventories for the holiday selling season.

As of February 1, 2014, we had $66.9 million in cash and cash equivalents and $93.8 million of borrowing availability under our Credit Agreement. We believe that we will continue to generate positive cash flows from operations on a full year basis. Internally generated cash, along with our available cash and borrowing capacity under the revolving credit agreement, will provide the means needed to fund our operations.

The following table presents cash flows data for fiscal 2013, fiscal 2012 and fiscal 2011 (dollar amounts in thousands):

 

     2013     2012     2011  

Cash provided by (used in):

      

Operating activities

   $ 40,066      $ 71,339      $ 64,584   

Investing activities

   $ (36,266   $ (45,426   $ (38,012

Financing activities

   $ (4,179   $ (52,733   $ (12,237

Cash provided by operating activities

Net cash provided by operating activities was $40.1 million for fiscal 2013 compared to net cash provided by operating activities of $71.3 million for fiscal 2012. The decrease in cash provided by operating activities for 2013 as compared to 2012 was due primarily to working capital changes including investments in inventory net of accounts payable. Cash provided by operating activities for fiscal 2012 was positively impacted by an income tax refund of approximately $6.6 million, which did not reoccur in 2013. Cash provided by operating activities for fiscal 2012 includes a positive working capital impact from lengthening vendor payment terms implemented in early 2011 which did not reoccur in 2012.

 

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Cash used in investing activities

Net cash used in investing activities was solely for capital expenditures. Capital expenditures in 2013, 2012 and 2011 include approximately $13 million, $20 million and $20 million, respectively, for systems improvements, with the largest portion for our new merchandise information system. The remaining capital amounts are for opening and remodeling stores, including upgrades to fitting rooms, lighting, flooring and fixtures. We also replaced our point-of-sale system hardware during 2011, primarily with assets acquired through capital leases.

We expect to invest approximately $38 million in capital expenditures in 2014, with $13 million for continuing information systems upgrades, $13 million for store remodels and $12 million for new and relocated stores. Each new store requires capital expenditures of approximately $0.5 million for fixtures and equipment, $1.2 million for leasehold improvements, $0.2 million for pre-opening expenses (excluding rent during the pre-opening term) and $0.9 million for initial inventory investment (or $0.4 million net of accounts payable). Leasehold improvements generally are either paid for by the landlord or are reimbursed by the landlord through tenant improvement allowances and recognized as a reduction of rent over the lease term. Rent during the pre-opening term generally ranges from insignificant to $0.2 million with higher amounts attributable to situations where we have property access during the construction period.

Cash used in financing activities

Financing activities in 2013 include $6.7 million payment of three quarterly dividends of $0.05 per share. Financing activities for 2012 include $43.8 million for payment of a special dividend of $1.00 per share. There were no dividends paid in 2011. During 2013 we repurchased 0.1 million shares of our common stock at a cost of $1.1 million. During 2012 we repurchased 0.6 million shares of our common stock at a cost of $3.9 million compared to 1.7 million shares at a cost of $12.1 million in 2011.

Capital lease payments were $2.2 million, $6.1 million and $3.4 million for 2013, 2012 and 2011, respectively.

In October 2011, we entered into an amended and restated revolving credit agreement (the “Credit Agreement”) with Wells Fargo Bank, N.A. The Credit Agreement provides for a $100 million senior secured revolving credit facility which can be increased to $150 million. The Credit Agreement matures on February 28, 2017. The amount available for borrowing was $93.8 million at February 1, 2014 and is based on 90% of eligible credit card receivables and inventories less reserves, as defined in the Credit Agreement. The amount available for borrowing represents the capped borrowing base of $100 million reduced by outstanding letters of credit of $6.2 million. We did not use our revolving credit facility in 2013 or 2012, other than for outstanding letters of credit. We had no direct borrowings at February 1, 2014.

Impact of Inflation

Although we expect that our operations will be influenced by general economic conditions, including rising food, fuel and energy prices, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by such factors in the future.

Contractual Obligations

The following table sets forth our contractual obligations at February 1, 2014 (dollar amounts in thousands):

 

     Total      Less than
1 Year
     1 – 2
Years
     3 – 5
Years
     After 5
Years
 
              

Operating leases

   $ 401,783       $ 79,465       $ 74,070       $ 148,998       $ 99,250   

Purchase obligations (a)

     111,722         111,722         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 513,505       $ 191,187       $ 74,070       $ 148,998       $ 99,250   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Represent open purchase orders with vendors for merchandise not yet received or recorded on our Consolidated Balance Sheet.

The above table does not include long-term debt as we did not have any direct borrowings under our senior revolving credit facility at February 1, 2014. Other long-term liabilities on the balance sheet include the liability for unrecognized tax benefits, deferred compensation, deferred rent liability, postretirement benefit liability and other long-term liabilities that do not have specific due dates, so are excluded from the preceding table.

Off-Balance Sheet Arrangements

We have outstanding standby letters of credit totaling $6.2 million securing certain insurance programs at February 1, 2014. If certain conditions were to occur under these arrangements, we would be required to satisfy the obligations in cash. Due to the nature of these arrangements and based on historical experience, we do not expect to make any payments; therefore, the letters of credit are excluded from the preceding table. There are no other off-balance sheet arrangements that could affect our financial condition.

 

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Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosure of contingent assets and liabilities. Management bases its estimates and judgments on historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. While we believe that the historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the financial statements, we cannot guarantee that our estimates and assumptions will be accurate, which could require adjustments of these estimates in future periods. A summary of the more significant accounting policies follows.

Retail Inventory Method and Inventory Valuation. Inventories are valued using the lower of cost or market value, determined by the retail inventory method. Under the retail inventory method (“RIM”), the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventories. RIM is an averaging method that is widely used in the retail industry. The use of the retail inventory method results in valuing inventories at lower of cost or market as permanent markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which significantly affect the ending inventory valuation at cost as well as the corresponding charge to cost of goods sold. In addition, failure to take appropriate permanent markdowns currently can result in an overstatement of inventory.

We perform physical inventory counts at all stores annually. Included in the carrying value of merchandise inventories is a reserve for shrinkage. Shrinkage is estimated based on historical physical inventory results as a percentage of sales for the year. The difference between actual and estimated amounts in any year may cause fluctuations in quarterly results, but is not a factor in full year results.

Vendor Allowances. We receive allowances from some of our vendors primarily related to markdown reimbursement, damaged/defective merchandise and vendor compliance issues. Vendor allowances are recorded when earned. Allowances received from vendors related to profitability of inventory recently sold are reflected as reductions to cost of merchandise sold in the later of the period that the merchandise markdown is incurred or the allowance is negotiated. Allowances received from vendors related to damaged/defective inventory are reflected as reductions to the cost of merchandise as it is received. Allowances received due to vendors’ failure to comply with our policies (primarily violations of shipping and merchandise preparation requirements) are reflected as a reduction of the cost of the merchandise when identified during the receiving process. Although it is unlikely that there will be a significant reduction in historical levels of vendor support, if a reduction were to occur, we could experience higher cost of merchandise sold.

Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors used in the review include management’s plans for future operations, recent operating results and projected cash flows. For long-lived assets held for use, an impairment loss is recognized if the sum of the future undiscounted cash flows from the use of the assets is less than the carrying value of the assets. The amount of the impairment charge is the excess of the carrying value of the asset over its fair value. Fair value, as used in our asset impairment calculations, is based on the best information available, including prices for similar assets. Impairment reviews are performed for individual stores during the fourth quarter, or more frequently should circumstances change. A significant change in cash flows could result in an increase in asset impairment charges. During 2013, 2012 and 2011, we recorded $2.2 million, $0.5 million and $1.2 million, respectively, in asset impairment charges.

Store Closing Costs. We record costs associated with store closing activities when they are incurred, generally the cease-use date. Lease termination costs are recorded net of estimated sublease income that could reasonably be obtained for the properties. In the event we are not successful in subleasing closed store locations, additional store closing costs may be recorded. During 2013, 2012 and 2011, we recorded $0.1 million, $1.0 million and $1.2 million, respectively, in store closing charges.

Insurance Reserves. We use a combination of insurance and self-insurance for various risks including workers’ compensation, general liability and associate-related health care benefits. We are responsible for paying the claims that are less than the insured limits. The reserves recorded for these claims are actuarially estimated based on claims filed and claims incurred but not reported. These reserve estimates are adjusted based upon actual claims filed and settled. The estimated accruals for these reserves could be significantly affected if future claims differ from historical trends and other actuarial assumptions. As of February 1, 2014 and February 2, 2013, insurance reserves of $16.7 million and $16.8 million, respectively, were included in Accrued expenses and other current liabilities and Other liabilities in the accompanying Consolidated Balance Sheets. Historically, our actuarial estimates have not been materially different from actual results.

Income Tax Reserves. We record liabilities for uncertain tax positions related to federal and state income taxes. These liabilities reflect our best estimate of our ultimate income tax liability based on the tax code, regulations, and pronouncements of the jurisdictions in which we do business. Estimating our ultimate tax liability involves significant judgments regarding the application of complex tax regulations across many jurisdictions. If actual results differ from estimated results, our effective tax rate and tax balances could be affected. As such, these estimates may require adjustment in the future as additional facts become known or as circumstances change.

 

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For a complete listing of our significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . ASU No. 2013-02 requires presentation of reclassification adjustments from each component of accumulated other comprehensive income either in a single note or parenthetically on the face of the financial statements, for those amounts required to be reclassified into net income in their entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety in the same reporting period, cross-reference to other disclosures is required. We adopted this guidance in the first quarter of 2013. The adoption of this guidance did not have a material impact on our financial statements or disclosures.

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under ASU No. 2013-11, an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The application of this guidance affects presentation only and, therefore, it is not expected to have a material impact to the Company’s consolidated financial statements when adopted.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risk primarily through borrowings under our revolving credit facility which are at variable rates. The facility permits debt commitments up to $100 million, which can be increased to $150 million, has a February 2017 maturity date and bears interest at spreads over the prime rate and LIBOR. We had no borrowings under our revolving credit facility during 2013, other than fees charged by the lender and outstanding letters of credit.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and the Report of Independent Registered Certified Public Accounting Firm thereon are filed pursuant to this Item 8 and are included in this report beginning on page F-1.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

As disclosed in the Company’s current report on Form 8-K filed with the SEC on July 10, 2013, the Company changed its independent registered public accountants effective July 10, 2013.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. In light of the material weakness noted below, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the date of that evaluation.

The Company assessed the material weakness’ impact to the consolidated financial statements to ensure they were prepared in accordance with generally accepted accounting principles and present fairly the financial results of operation as of and for the year ended February 1, 2014. Based on management’s additional procedures and assessment, management concluded that the consolidated financial statements included in this Form 10-K present fairly, in all material aspects, the Company’s financial position, results of operations and cash flows for the periods presented.

 

(b) Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of February 1, 2014 using the criteria set forth in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded that our internal control over financial reporting was not effective as of February 1, 2014 because of the identification of the material weakness noted below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We have identified a material weakness in the design and effectiveness in the operation of our controls that are intended to ensure that access to our retail management system and the related inventory data files was adequately restricted. As a result of this material weakness, a reasonable possibility exists that a material misstatement in inventory in our annual or interim financial statements could occur and not be prevented or detected on a timely basis.

The effectiveness of the Company’s internal control over financial reporting as of February 1, 2014 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included on page F-1.

 

(c) Changes in Internal Control Over Financial Reporting

Other than the changes in internal control over financial reporting discussed under (b) above and (d) below, there were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

(d) Management’s Plans for Remediation of our Material Weaknesses

Remediation Efforts to Address the Material Weakness

We have discussed the material weakness described above with our Audit Committee and are implementing new policies and procedures to enhance oversight of our system access controls including implementation of an access controls governance software program, improved periodic access reviews, and timely communication of employee changes.

Remediation of Previously Disclosed Material Weaknesses

As discussed in our 2012 Form 10-K, we identified material weaknesses in our internal control over financial reporting related to evaluating, monitoring and properly accounting for inventory markdowns, leasehold improvement costs, compensated absences (paid vacation), indirect overhead cost capitalization, and amortization periods and retirements of software assets. We also determined inadequate communication existed between finance and other departments. The following remediation activities were implemented and tested during 2013:

Inventory Markdowns:

 

    Merchandising and financial management updated the existing policies and procedures to reflect the agreed upon characteristics of markdowns as either promotional or permanent.

 

    At quarter end, merchandising and financial management review markdown activity to determine if all items have been recorded in accordance with markdown policies.

 

    At quarter end, financial management meets with merchandising management to review the seasonal inventory levels. Based on this analysis they will assess comparability and appropriateness of permanent markdowns and related markdown levels.

 

    Merchandising and financial management review promotional markdowns in detail to determine whether pricing actions before and after quarter end indicate situations where markdowns should be more appropriately identified as permanent.

 

    Financial management approves changes, if any, in seasonal merchandise designated out-of-stock dates.

The effectiveness of certain of these controls depends in part upon access controls, see material weakness described in (b).

Leasehold improvement costs:

 

    Management updated the existing policies and procedures to reflect the proper accounting treatment of lease terms.

 

    Financial management reviews the terms of all new leases that contain tenant improvement allowances in accordance with the updated policies to verify that leasehold improvements and deferred rent credits are correctly recorded.

 

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    The finance department meets with real estate management annually to review the lease accounting policy and validate the underlying assertions made by the real estate department upon which the policy is predicated.

 

    We purchased a software application that in addition to streamlining our processes for tracking and recording leases, also facilitates communication between our finance and real estate departments.

Compensated absences (paid vacation):

 

    The finance department updated the accounting policy for recording accrued vacation to reflect the proper accounting treatment of compensated absences (paid vacation) in accordance with the Company’s vacation policy.

 

    Changes to the Company’s vacation policy require approval by the finance department.

 

    Human resources and financial management review and approve the vacation accrual on a quarterly basis and determines that the accrual calculation is consistent with the Company’s vacation policy.

Indirect overhead cost capitalization:

 

    The accounting policy for recording the indirect cost capitalization adjustment was changed to include quarterly review of the indirect overhead rate assumptions and preparation of the resulting inventory adjustment on a quarterly basis.

 

    Financial management reviews and approves the indirect cost capitalization adjustment on a quarterly basis.

Software assets amortization periods and retirements:

 

    Financial management reviews software asset additions with IT personnel and approves the software asset amortization period and capitalization prior to recording the asset in the fixed asset subledger.

 

    For retirements, we added procedures for IT personnel and financial management to review the software assets listing to identify assets no longer in use on an annual basis.

The following remediation activities were implemented in 2012 and tested in 2013:

Information technology communication:

 

    IT personnel regularly review systematic schedule changes that have been temporarily placed on hold.

 

    IT management implemented procedures to ensure formal communication and documentation with finance and other department heads related to issue resolution.

Finance communication:

 

    We re-evaluated the composition and structure of our finance organization and made several changes including replacing associates in several key positions, modifying associate responsibilities, adding resources and realigning reporting assignments to strengthen the skills and capabilities of the organization and to improve the level of information and communication between departmental functions.

 

    We implemented a quarterly sub-certification process whereby all members of upper management and certain other management representatives review our filings and confirm their responsibility for, among other things, the effectiveness of key controls in their functional areas and that they are unaware of inaccuracies or omissions in our financial statements.

 

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ITEM 9B. OTHER INFORMATION

Effective July 31, 2013, we renewed the employment agreement with our Executive Vice President and Chief Financial Officer, Gregory W. Kleffner. The material terms and conditions of Mr. Kleffner’s employment agreement dated July 31, 2011 remain unchanged, with the exception of the extension of the term of the agreement for an additional two (2) year term.

Effective September 15, 2013, we renewed the employment agreement with our Executive Vice President and Chief Operating Officer, D. Hunt Hawkins. The material terms and conditions of Mr. Hawkin’s employment agreement dated September 15, 2011 remain unchanged, with the exception of the extension of the term of the agreement for an additional two (2) year term.

Effective March 1, 2014, we renewed the employment agreement with our Executive Vice President and Chief Merchandising Officer, Brian R. Morrow. The material terms and conditions of Mr. Morrow’s employment agreement dated March 1, 2012 remain unchanged, with the exception of the extension of the term of the agreement for an additional two (2) year term.

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 24, 2014 Annual Meeting of Shareholders.

We have adopted a code of conduct applicable to all of our officers, directors and employees, including the principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The text of this code of conduct may be found on our investor relations website at http://ir.steinmart.com (click on “Charters & Documents”). We intend to post notice of any waiver from, or amendment to, any provision of our code of conduct on our website.

 

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 24, 2014 Annual Meeting of Shareholders.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 24, 2014 Annual Meeting of Shareholders.

Equity Compensation Plan Information

The following table presents information about our common stock that may be issued under equity-based compensation plans as of February 1, 2014:

 

Plan Category

   (a)
Number of securities
to be issued upon
exercise of
outstanding
options, warrants
and  rights
(in thousands)
     (b)
Weighted-average
exercise price of
outstanding options,
warrants and  rights
($)(1)
     (c)
Number of securities
remaining available for
future issuance under
equity compensation  plans
(excluding securities in
column (a)) (in thousands)
 

Equity compensation plans approved by shareholders

     2,835       $ 7.20         4,121   

Equity compensation plans not approved by shareholders

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

     2,835       $ 7.20         4,121   
  

 

 

    

 

 

    

 

 

 

 

(1) The weighted average exercise price does not take into account 2.0 million shares issuable related to restricted stock and performance share awards which have no exercise price.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 24, 2014 Annual Meeting of Shareholders.

 

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 24, 2014 Annual Meeting of Shareholders.

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a) The following financial statements and exhibits are filed as part of this report or are incorporated herein as indicated.

1. List of Financial Statements

 

    

Page

Report of Independent Registered Public Accounting Firm

   F–1

Report of Independent Registered Public Accounting Firm

   F–2

Report of Independent Registered Certified Public Accounting Firm

   F–3

Consolidated Balance Sheets

   F–4

Consolidated Statements of Income

   F–5

Consolidated Statements of Comprehensive Income

   F–6

Consolidated Statements of Shareholders’ Equity

   F–7

Consolidated Statements of Cash Flows

   F–8

Notes to Consolidated Financial Statements

   F–9

2. List of Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is presented in the financial statements or notes thereto.

3. List of Exhibits

See “Exhibit Index”, which is incorporated herein by reference.

In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 

    should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

    have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

    may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

    were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company’s other public files, which are available without charge through the SEC’s website at http://www.sec.gov .

Unless otherwise indicated below, the Commission file number to the exhibit is No. 0-20052.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      STEIN MART, INC.
Date: April 15, 2014     By:  

/s/ Jay Stein

      Jay Stein
      Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on the 15 th day of April, 2014.

 

/s/ Jay Stein

    

/s/ Linda M. Farthing

Jay Stein

Chairman of the Board and Chief Executive Officer

    

Linda M. Farthing

Director

    

/s/ Gregory W. Kleffner

    

/s/ Mitchell W. Legler

Gregory W. Kleffner

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Chief Accounting Officer)

    

Mitchell W. Legler

Director

    

/s/ Ralph Alexander

    

/s/ Richard L. Sisisky

Ralph Alexander

Director

    

Richard L. Sisisky

Director

    
    

/s/ Alvin R. Carpenter

    

/s/ Martin E. Stein, Jr.

Alvin R. Carpenter

Director

    

Martin E. Stein, Jr.

Director

    

/s/ Irwin Cohen

    

/s/ Burton M. Tansky

Irwin Cohen

Director

    

Burton M. Tansky

Director

    

/s/ Susan Falk

    

Susan Falk

Director

    
    

Majority of the Board of Directors.

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Stein Mart, Inc.:

We have audited Stein Mart’s internal control over financial reporting as of February 1, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Stein Mart’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Item 9A(b), Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to the design and effectiveness in the operation of controls that are intended to ensure that access to the retail management system including related inventory data files was adequately restricted has been identified and included in management’s assessment in Item 9A(b). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Stein Mart, Inc. and subsidiary as of February 1, 2014, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year ended February 1, 2014. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated balance sheet of Stein Mart, Inc. and subsidiary as of February 1, 2014 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended, and this report does not affect our report dated April 15, 2014, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, Stein Mart has not maintained effective internal control over financial reporting as of February 1, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Jacksonville, FL

April 15, 2014

Certified Public Accountants

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Stein Mart, Inc.:

We have audited the accompanying consolidated balance sheet of Stein Mart, Inc. and subsidiary as of February 1, 2014 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year ended February 1, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stein Mart, Inc. and subsidiary as of February 1, 2014 and the results of its operations and its cash flows for the year ended February 1, 2014, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Stein Mart, Inc.’s internal control over financial reporting as of February 1, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 15, 2014, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Jacksonville, FL

April 15, 2014

Certified Public Accountants

 

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Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors

and Shareholders of Stein Mart, Inc.

In our opinion, the consolidated balance sheet as of February 2, 2013 and the related consolidated statements of income, of comprehensive income, of shareholders’ equity and of cash flows for each of two years in the period ended February 2, 2013 present fairly, in all material respects, the financial position of Stein Mart, Inc. and its subsidiaries at February 2, 2013, and the results of their operations and their cash flows for each of the two years in the period ended February 2, 2013, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ PricewaterhouseCoopers LLP
Jacksonville, Florida
May 3, 2013

 

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Table of Contents

Stein Mart, Inc.

Consolidated Balance Sheets

(In thousands, except for share and per share data)

 

     February 1, 2014     February 2, 2013  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 66,854      $ 67,233   

Inventories

     261,517        243,345   

Prepaid expenses and other current assets

     28,800        22,855   
  

 

 

   

 

 

 

Total current assets

     357,171        333,433   

Property and equipment, net

     139,673        131,570   

Other assets

     27,414        26,706   
  

 

 

   

 

 

 

Total assets

   $ 524,258      $ 491,709   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 131,338      $ 130,972   

Accrued expenses and other current liabilities

     64,875        66,109   
  

 

 

   

 

 

 

Total current liabilities

     196,213        197,081   

Deferred rent

     16,946        16,450   

Other liabilities

     46,698        44,144   
  

 

 

   

 

 

 

Total liabilities

     259,857        257,675   
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Notes 5 and 9)

    

Shareholders’ equity:

    

Preferred stock - $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding

    

Common stock - $.01 par value; 100,000,000 shares authorized; 44,551,676 and 43,808,485 shares issued and outstanding, respectively

     446        438   

Additional paid-in capital

     28,745        17,491   

Retained earnings

     235,471        216,574   

Accumulated other comprehensive loss

     (261     (469
  

 

 

   

 

 

 

Total shareholders’ equity

     264,401        234,034   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 524,258      $ 491,709   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Stein Mart, Inc.

Consolidated Statements of Income

(In thousands, except for per share amounts)

 

     Year Ended
February 1, 2014
     Year Ended
February 2, 2013
     Year Ended
January 28, 2012
 

Net sales

   $ 1,263,571       $ 1,232,366       $ 1,177,951   

Cost of merchandise sold

     896,218         889,736         858,335   
  

 

 

    

 

 

    

 

 

 

Gross profit

     367,353         342,630         319,616   

Selling, general and administrative expenses

     326,520         306,407         287,184   
  

 

 

    

 

 

    

 

 

 

Operating income

     40,833         36,223         32,432   

Interest expense, net

     265         225         286   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     40,568         35,998         32,146   

Income tax expense

     15,013         10,971         12,215   
  

 

 

    

 

 

    

 

 

 

Net income

   $ 25,555       $ 25,027       $ 19,931   
  

 

 

    

 

 

    

 

 

 

Net income per share:

        

Basic

   $ 0.58       $ 0.57       $ 0.45   
  

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.57       $ 0.57       $ 0.44   
  

 

 

    

 

 

    

 

 

 

Weighted-average shares outstanding:

        

Basic

     43,053         42,639         43,482   
  

 

 

    

 

 

    

 

 

 

Diluted

     43,778         42,828         43,721   
  

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Stein Mart, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

 

     Year Ended
February 1, 2014
     Year Ended
February 2, 2013
    Year Ended
January 28, 2012
 

Net income

   $ 25,555       $ 25,027      $ 19,931   

Other comprehensive income, net of tax:

       

Change in post-retirement benefit obligations (See Note 7):

       

Other comprehensive income (loss) before reclassifications

     199         8,535        (1,875

Amounts reclassified from accumulated other comprehensive income

     9         (7,585     —     
  

 

 

    

 

 

   

 

 

 

Comprehensive income

   $ 25,763       $ 25,977      $ 18,056   
  

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Stein Mart, Inc.

Consolidated Statements of Shareholders’ Equity

(In thousands)

 

     Common Stock     Additional
Paid-in
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Shareholders’
Equity
 
          
          
   Shares     Amount          

Balance at January 29, 2011

     44,397        444        21,126        215,455        456        237,481   

Net income

           19,931          19,931   

Other comprehensive loss, net of tax

             (1,875     (1,875

Common shares issued under stock option plan

     270        3        2,147            2,150   

Common shares issued under employee stock purchase plan

     112        1        740            741   

Reacquired shares

     (1,654     (17     (12,124         (12,141

Issuance of restricted stock, net

     464        5        (5         —     

Share-based compensation

         3,821            3,821   

Tax deficiency from equity issuances

         (437         (437
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 28, 2012

     43,589        436        15,268        235,386        (1,419     249,671   

Net income

           25,027          25,027   

Other comprehensive income, net of tax

             950        950   

Common shares issued under stock option plan

     24        —          100            100   

Common shares issued under employee stock purchase plan

     64        1        370            371   

Reacquired shares

     (575     (6     (3,933         (3,939

Issuance of restricted stock, net

     706        7        (7         —     

Share-based compensation

         6,203            6,203   

Tax deficiency from equity issuances

         (510         (510

Cash dividends paid ($1.00 per share)

           (43,839       (43,839
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at February 2, 2013

     43,808      $ 438      $ 17,491      $ 216,574      $ (469   $ 234,034   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           25,555          25,555   

Other comprehensive income, net of tax

             208        208   

Common shares issued under stock option plan

     450        5        3,958            3,963   

Tax withholding payment related to the net share settlement of equity awards

         (23         (23

Common shares issued under employee stock purchase plan

     83        1        692            693   

Reacquired shares

     (88     (1     (1,090         (1,091

Issuance of restricted stock, net

     299        3        (3         —     

Share-based compensation

         7,291            7,291   

Tax benefit from equity issuances

         429            429   

Cash dividends paid ($0.15 per share)

           (6,658       (6,658
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at February 1, 2014

     44,552      $ 446      $ 28,745      $ 235,471      $ (261   $ 264,401   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Stein Mart, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 

     Year Ended
February 1, 2014
    Year Ended
February 2, 2013
    Year Ended
January 28, 2012
 

Cash flows from operating activities:

      

Net income

   $ 25,555      $ 25,027      $ 19,931   

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation and amortization

     27,752        23,911        18,614   

Share-based compensation

     7,291        6,203        3,821   

Store closing (benefits) charges

     (50     996        793   

Impairment of property and other assets

     2,210        523        1,166   

Loss on disposal of property and equipment

     701        1,324        77   

Deferred income taxes

     (666     2,916        12,247   

Tax benefit (deficiency) from equity issuances

     429        (510     (437

Excess tax benefits from share-based compensation

     (1,134     (640     (375

Changes in assets and liabilities:

      

Inventories

     (18,172     (24,513     10,864   

Prepaid expenses and other current assets

     (4,182     11,836        (12,986

Other assets

     (708     (4,137     (3,515

Accounts payable

     189        24,909        10,518   

Accrued expenses and other current liabilities

     (1,465     450        (3,518

Other liabilities

     2,316        3,044        7,384   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     40,066        71,339        64,584   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Capital expenditures

     (36,266     (45,426     (38,012
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (36,266     (45,426     (38,012
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Cash dividends paid

     (6,658     (43,839     —     

Capital lease payments

     (2,197     (6,066     (3,362

Excess tax benefits from share-based compensation

     1,134        640        375   

Proceeds from exercise of stock options and other

     4,633        471        2,891   

Repurchase of common stock

     (1,091     (3,939     (12,141
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (4,179     (52,733     (12,237
  

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (379     (26,820     14,335   

Cash and cash equivalents at beginning of year

     67,233        94,053        79,718   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 66,854      $ 67,233      $ 94,053   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

      

Income taxes paid

   $ 17,167      $ 9,891      $ 12,374   

Property and equipment acquired through capital lease

     —          1,912        9,713   

Interest paid

     273        323        337   

Purchases of property and equipment included in accounts payable, accrued expenses and other current liabilities at period end

     2,500        —          —     

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

1. Summary of Significant Accounting Policies and Other Information

As of February 1, 2014 we operated a chain of 264 retail stores in 29 states and an Internet store that offers the fashion merchandise, service and presentation of a better department or specialty store at prices competitive with off-price retail chains.

As used herein, the terms “we”, “our”, “us”, “Stein Mart” and the “Company” refer to Stein Mart, Inc. and its wholly-owned subsidiaries, Stein Mart Buying Corp. and Stein Mart Holding Corp.

Consolidation. The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts have been eliminated in consolidation.

Fiscal Year End. Our fiscal year ends on the Saturday closest to January 31. Fiscal years 2013, 2012 and 2011 ended on February 1, 2014, February 2, 2013 and January 28, 2012, respectively. Fiscal 2013 and 2011 included 52 weeks. Fiscal 2012 included 53 weeks. References to years in the Consolidated Financial Statements relate to fiscal years rather than calendar years.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents. Cash and cash equivalents include primarily investments in money market funds. The money market fund investments are Level 1 assets because fair value is based on readily available market prices. The fair value of these assets was $56.2 million at February 1, 2014 and $55.2 million at February 2, 2013.

Also included in cash and cash equivalents are cash on hand in the stores, deposits with banks and amounts due from credit card transactions with settlement terms of five days or less. Credit and debit card receivables included within cash were $8.3 million and $8.9 million at February 1, 2014 and February 2, 2013, respectively.

Retail Inventory Method and Inventory Valuation. Inventories are valued using the lower of cost or market value, determined by the retail inventory method. Under the retail inventory method (“RIM”), the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventories. RIM is an averaging method that is widely used in the retail industry. The use of the retail inventory method results in valuing inventories at lower of cost or market as permanent markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which significantly affect the ending inventory valuation at cost as well as the corresponding charge to cost of goods sold. In addition, failure to take appropriate permanent markdowns currently can result in an overstatement of inventory.

Vendor Allowances. We receive allowances from some of our vendors primarily related to markdown reimbursement, damaged/defective merchandise and vendor compliance issues. Vendor allowances are recorded when earned in accordance with Accounting Standards Codification (“ASC”) Topic 605-50, Revenue Recognition, Customer Payments and Incentives . Allowances received from vendors related to profitability of inventory recently sold are reflected as reductions to cost of merchandise sold in the later of the period that the merchandise markdown is incurred or the allowance is negotiated. Allowances received from vendors related to damaged/defective inventory are reflected as reductions to the cost of merchandise as it is received. Allowances received due to compliance issues (primarily violations of shipping and merchandise preparation requirements) are reflected as a reduction to the cost of the merchandise when identified during the receiving process.

Property and Equipment. Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over estimated useful lives of 3-10 years for fixtures, equipment and software and 5-10 years for leasehold improvements. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the term of the lease. We capitalize costs associated with the acquisition or development of software for internal use. We only capitalize subsequent additions, modifications or upgrades to internal-use software to the extent that such changes increase functionality. We expense software maintenance and training costs as incurred.

Impairment of Long-Lived Assets. We follow the guidance in ASC Topic 360, Property, Plant and Equipment , which requires impairment losses to be recorded on long-lived assets used in operations whenever events or changes in circumstances indicate that the net carrying amounts may not be recoverable. For long-lived assets held for use, an impairment loss is recognized if the sum of the future

 

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Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

undiscounted cash flows from the use of the assets is less than the carrying value of the assets. The amount of the impairment is the excess of the carrying value of the asset over its fair value. Fair value is based on the best information available, including prices for similar assets. Impairment reviews are performed for individual stores during the fourth quarter, or more frequently should circumstances change. Factors used in the review include management’s plans for future operations, recent operating results and projected cash flows. See Note 2 for further discussion.

Fair Value Measurements. We follow the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance also establishes the following three-level hierarchy based upon the transparency of inputs to the valuation of an asset or liability on the measurement date:

 

  Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

 

  Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

  Level 3: Unobservable inputs that reflect assumptions about what market participants would use in pricing assets or liabilities based on the best information available.

Assets and liabilities measured at fair value on a recurring basis include cash and cash equivalents. Assets and liabilities measured on a non-recurring basis include store related assets as used in our impairment calculations. See Note 2 for further discussion.

Store Closing Costs. We follow the guidance in ASC Topic 420, Exit or Disposal Cost Obligations, to record store closing costs. ASC Topic 420 requires the recognition of costs associated with exit or disposal activities when they are incurred, generally the cease-use date. Lease termination costs are recorded net of estimated sublease income that could reasonably be obtained for the properties.

Accounts Payable. Accounts payable represents amounts owed to third parties at the end of the period. Accounts payable includes book cash overdrafts in excess of cash balances in such accounts of approximately $25.8 million and $22.0 million at February 1, 2014 and February 2, 2013, respectively. The Company includes the change in book cash overdrafts in operating cash flows.

Insurance Reserves. We use a combination of insurance and self-insurance for various risks including workers’ compensation, general liability and associate-related health care benefits, a portion of which is paid by the covered employees. We are responsible for paying the claims that are less than the insured limits. The reserves recorded for these claims are estimated actuarially, based on claims filed and claims incurred but not reported. These reserve estimates are adjusted based upon actual claims filed and settled.

Store Pre-Opening Costs. Costs incurred prior to the date that new stores open are expensed as incurred. These include payroll for store set-up, advertising and pre-opening rent.

Comprehensive Income. Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to gains and losses that, under generally accepted accounting principles, are recorded as an element of shareholders’ equity but are excluded from net income. Accumulated other comprehensive loss in 2013, 2012, and 2011 includes changes in postretirement benefits. See Note 7 for further discussion.

Revenue Recognition. Revenue from sales of our merchandise is recognized at the time of sale, net of any returns, discounts and percentage-off coupons. The Company’s e-commerce operation records revenue at the estimated customer receipt date. Shipping and handling fees charged to customers are also included in total net sales with corresponding costs recorded as cost of goods sold. Future merchandise returns are estimated based on historical experience. Sales tax collected from customers is not recognized as revenue and is included in Accrued expenses and other current liabilities until paid. Shoe department inventory is owned by a single supplier under a supply agreement. Our percentage of net revenue per the supply agreement is included in Net sales in the Consolidated Statements of Income.

We offer electronic gift cards and electronic merchandise return cards to our customers. These cards do not have expiration dates. No revenue is recognized at the time gift cards are sold; rather, the issuance is recorded as a liability to customers. At the time merchandise return cards are issued for returned merchandise, the sale is reversed and the issuance is recorded as a liability to customers. These card liabilities are reduced and sales revenue is recognized when cards are redeemed for merchandise. Card liabilities are included within Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

During the second quarter of 2012, we updated certain assumptions on our obligations for unused gift and merchandise return card balances. In 2013, 2012 and 2011, we recognized $1.0 million, $3.0 million and $1.0 million, respectively, of breakage income on unused gift and merchandise return cards. Breakage income is recognized when the likelihood of the card being redeemed by the customer is remote and we have determined that there is no legal obligation to remit card balances to relevant jurisdictions. We follow the Redemption Recognition Method to account for breakage of unused cards where breakage is recognized as cards are redeemed for the purchase of merchandise based upon a historical breakage rate over an estimated redemption period. Breakage income is recorded within Selling, general and administrative expenses (“SG&A”) in the Consolidated Statements of Income.

Co-Brand and Private Label Credit Card Programs. We offer a co-branded credit card and a private label credit card under the Stein Mart brand. These cards are issued by a third-party bank, GE Capital Retail Bank (“GE”). GE extends credit directly to cardholders and provides all servicing for the credit card accounts and bears all credit and fraud losses. Once a card is activated, the co-branded credit card customers are eligible to participate in the credit card rewards program, which provides for an incentive to cardholders in the form of reward certificates upon the cumulative purchase of an established amount. Stein Mart cardholders also receive special promotional offers and advance notice of in-store sales events. In 2013, 2012 and 2011, we recognized $2.9 million, $2.3 million and $6.5 million, respectively, of income from these programs which are recorded within SG&A in the Consolidated Statements of Income.

Operating Leases. We lease all of our retail stores under operating leases. Certain lease agreements contain rent holidays, and/or rent escalation clauses. Except for contingent rent, we recognize rent expense on a straight-line basis over the lease term and record the difference between the amount charged to expense and the rent paid as a deferred rent liability. Contingent rent, determined based on a percentage of sales in excess of specified levels, is recognized as rent expense when achievement of the specified sales that triggers the contingent rent is probable. Construction allowances and other such lease incentives are recorded as a deferred rent liability and are amortized on a straight-line basis as a reduction of rent expense.

Advertising Expense. Advertising costs are expensed as incurred. Advertising expenses of $54.0 million, $52.4 million and $56.6 million are reflected in SG&A expenses in the Consolidated Statements of Income for 2013, 2012 and 2011, respectively.

Income Taxes. We follow the guidance in ASC Topic 740, Income Taxes , which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of events that have been included in the Consolidated Financial Statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance for amounts that do not satisfy required realization criteria. See Note 6 for further discussion.

Share-Based Compensation. We follow the guidance in ASC Topic 718, Stock Compensation , to record share-based compensation. Pursuant to the guidance, we recognize expense in the financial statements for the fair values of all share-based payments to employees over the employees’ requisite service periods.

Earnings Per Share (“EPS”). We follow the guidance of ASC Topic 260, Earnings Per Share , which clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of EPS under the two-class method. Our restricted stock awards are considered “participating securities” because they contain non-forfeitable rights to dividends. Under the two-class method, EPS is computed by dividing earnings allocated to common shareholders by the weighted-average number of common shares outstanding for the period. In applying the two-class method, earnings are allocated to both common stock shares and participating securities based on their respective weighted-average shares outstanding for the period.

 

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Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

The following table presents the calculation of basic and diluted EPS (shares in thousands):

 

     2013      2012      2011  

Basic Earnings Per Common Share:

        

Net income

   $ 25,555       $ 25,027       $ 19,931   

Income allocated to participating securities

     677         781         536   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 24,878       $ 24,246       $ 19,395   
  

 

 

    

 

 

    

 

 

 

Basic weighted-average shares outstanding

     43,053         42,639         43,482   
  

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 0.58       $ 0.57       $ 0.45   
  

 

 

    

 

 

    

 

 

 

Diluted Earnings Per Common Share:

        

Net income

   $ 25,555       $ 25,027       $ 19,931   

Income allocated to participating securities

     670         783         533   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 24,885       $ 24,244       $ 19,398   
  

 

 

    

 

 

    

 

 

 

Basic weighted-average shares outstanding

     43,053         42,639         43,482   

Incremental shares from share-based compensation plans

     725         189         239   
  

 

 

    

 

 

    

 

 

 

Diluted weighted-average shares outstanding

     43,778         42,828         43,721   
  

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 0.57       $ 0.57       $ 0.44   
  

 

 

    

 

 

    

 

 

 

Options to acquire shares and performance share awards totaling approximately 0.2 million, 1.2 million and 1.1 million shares of common stock that were outstanding during 2013, 2012 and 2011, respectively, were not included in the computation of diluted net income per share as they had exercise prices greater than the average market price of the common shares. Inclusion of these shares would have been anti-dilutive. Performance share awards were not included based on level of performance.

Consolidated Statements of Income Classifications. Cost of merchandise sold includes merchandise costs, net of vendor discounts and allowances; freight; inventory shrinkage; store occupancy costs (including rent, common area maintenance, real estate taxes, utilities and maintenance); payroll, benefits and travel costs directly associated with buying inventory; and costs related to the consolidation centers and distribution warehouses.

SG&A expenses include store operating expenses, such as payroll and benefit costs, advertising, store supplies, depreciation and other direct selling costs, and costs associated with our corporate functions.

Change in Accounting Estimate

During the fourth quarter of 2013, we refined our estimation of the buying and distribution costs allocated to inventories. This change lowered the percentage of expenses allocated to inventory purchases. The decrease in inventories resulted in a $5.0 million pretax non-cash charge ($3.1 million after-tax or $0.07 per diluted share), comprised of a $15.0 million increase in SG&A expenses and a $10.0 million increase in gross profit.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . ASU No. 2013-02 requires presentation of reclassification adjustments from each component of accumulated other comprehensive income either in a single note or parenthetically on the face of the financial statements, for those amounts required to be reclassified into net income in their entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety in the same reporting period, cross-reference to other disclosures is required. We adopted this guidance in the first quarter of 2013. The adoption of this guidance did not have a material impact on our financial statements or disclosures.

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under ASU No. 2013-11, an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The application of this guidance affects presentation only and, therefore, it is not expected to have a material impact to the Company’s consolidated financial statements when adopted.

 

F-12


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

2. Property and Equipment, Net

Property and equipment, net consists of the following:

 

     February 1,
2014
    February 2,
2013
 

Fixtures, equipment and software

   $ 199,362      $ 161,315   

Leasehold improvements

     92,591        90,947   
  

 

 

   

 

 

 
     291,953        252,262   

Accumulated depreciation and amortization

     (152,280     (130,200
  

 

 

   

 

 

 
     139,673        122,062   

Assets under capital leases, net of accumulated amortization of $0 and $2,117, respectively

     —          9,508   
  

 

 

   

 

 

 
   $ 139,673      $ 131,570   
  

 

 

   

 

 

 

Assets under capital leases as of February 2, 2013 were primarily point-of-sale and related store equipment. As of February 1, 2014, these leases had expired and assets are included in fixtures, equipment and software. Depreciation and amortization expense for property and equipment totaled $27.8 million, $23.9 million and $18.6 million for 2013, 2012 and 2011, respectively.

During 2013, 2012 and 2011, we recorded net pre-tax asset impairment charges in SG&A of $2.2 million, $0.5 million and $1.2 million, respectively, to reduce the carrying value of fixtures, equipment and leasehold improvements held for use and certain other assets in under-performing or closing stores to their respective estimated fair value. The 2013 impairment charges also included write-off of certain information technology assets that were replaced.

Store assets are considered Level 3 assets in the fair value hierarchy as the inputs for calculating the fair value of these assets are based on the best information available, including prices for similar assets. In 2013, store and information technology assets with a carrying value of $1.2 million and $1.0 million were written down to their fair value of $0 and $0, respectively. In 2012 and 2011, store assets with a carrying value of $0.5 million and $1.8 million were written down to their fair value of $0 and $0.6 million, respectively.

 

3. Accrued Expenses and Other Current Liabilities

The major components of accrued expenses and other current liabilities are as follows:

 

     February 1,
2014
     February 2,
2013
 

Compensation and employee benefits

   $ 14,305       $ 12,487   

Unredeemed gift and merchandise return cards

     9,517         9,163   

Property taxes

     11,528         11,357   

Accrued vacation

     6,976         6,553   

Other

     22,549         26,549   
  

 

 

    

 

 

 
   $ 64,875       $ 66,109   
  

 

 

    

 

 

 

 

4. Revolving Credit Agreement

In October 2011, we entered into an amended and restated revolving credit agreement (the “Credit Agreement”) with Wells Fargo Bank, N.A. The Credit Agreement provides for a $100 million senior secured revolving credit facility which can be increased to $150 million. The Credit Agreement matures on February 28, 2017 and replaces our existing $150 million revolving credit facility which was to mature in early 2012. Borrowings under the Credit Agreement are based on and collateralized by eligible credit card receivables and inventory. Proceeds may be used for general corporate purposes, including issuing standby and commercial letters of credit.

Borrowings under the Credit Agreement shall be either Base Rate Loans or LIBO Rate Loans (all terms as defined in the Credit Agreement). Base Rate Loans bear interest equal to the highest of (a) the Federal Funds Rate plus one-half of one percent (0.50%), (b) the Adjusted LIBO Rate plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its “prime rate”, plus the Applicable Margin. LIBO Rate Loans shall bear interest equal to the Adjusted LIBO Rate plus the Applicable Margin. The Adjusted LIBO Rate with respect to any LIBO Rate Loan is the interest rate per annum equal to the LIBO Rate

 

F-13


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

for such Interest Period multiplied by the Statutory Reserve Rate. The Adjusted LIBO Rate with respect to any Base Rate Loan is the interest rate per annum equal to the LIBO Rate for an Interest Period commencing on the date of such calculation and ending on the date that is thirty (30) days thereafter multiplied by the Statutory Reserve Rate. The Applicable Margin is based upon a pricing grid depending on the Average Daily Availability.

The total amount available under the Credit Agreement is the lesser of $100 million or 90% of eligible credit card receivables and inventories less reserves. The net amount available for borrowing at February 1, 2014 was $93.8 and represents the capped borrowing base of $100 million reduced by outstanding letters of credit of $6.2 million. The Credit Agreement contains customary affirmative and negative covenants, including limitations on granting of liens, certain investments, additional indebtedness, prepayments on indebtedness and disposition of inventory. We had no direct borrowings at February 1, 2014.

 

5. Leases

We lease all of our retail stores, support facilities and certain equipment under operating leases. Our store leases are generally for 10 years with options to extend the lease term for two or more 5-year periods. Annual store rent is generally comprised of a fixed minimum amount plus a contingent amount based on a percentage of sales in excess of specified levels. Most store leases also require additional payments covering real estate taxes, common area costs and insurance.

Rent expense is as follows:

 

     2013      2012      2011  

Minimum rentals

   $ 73,594       $ 71,260       $ 72,581   

Contingent rentals

     1,013         981         1,014   
  

 

 

    

 

 

    

 

 

 
   $ 74,607       $ 72,241       $ 73,595   
  

 

 

    

 

 

    

 

 

 

At February 1, 2014, future contractual minimum lease payments under operating leases are:

 

2014

   $ 79,465   

2015

     74,070   

2016

     62,740   

2017

     49,322   

2018

     36,936   

Thereafter

     99,250   
  

 

 

 

Total

   $ 401,783   
  

 

 

 

 

F-14


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

6. Income Taxes

Temporary differences, which give rise to deferred tax assets and liabilities, are as follows:

 

     February 1,
2014
    February 2,
2013
 

Deferred income tax assets:

    

Employee benefit expense

   $ 12,946      $ 11,423   

Deferred rents

     10,118        9,862   

Net operating loss carryforwards

     733        554   

Other

     6,544        8,129   
  

 

 

   

 

 

 

Total deferred income tax assets

     30,341        29,968   
  

 

 

   

 

 

 

Deferred income tax liabilities:

    

Property and equipment

     (31,543     (28,789

Inventory

     (2,478     (4,580

Other

     (1,264     (1,497
  

 

 

   

 

 

 

Total deferred income tax liabilities

     (35,285     (34,866
  

 

 

   

 

 

 

Net deferred income tax liabilities

   $ (4,944   $ (4,898
  

 

 

   

 

 

 

As of February 1, 2014, the Company had net operating losses (“NOL”) carryforwards for state income tax purposes of $16.3 million that will begin to expire in 2015.

Deferred tax assets (liabilities) are reflected on the Consolidated Balance Sheets as follows:

 

     February 1,
2014
    February 2,
2013
 

Current deferred tax assets (included in Other current assets)

   $ 4,364      $ 2,602   

Non-current deferred tax liabilities (included in Other liabilities)

     (9,308     (7,500
  

 

 

   

 

 

 

Net deferred tax liability

   $ (4,944   $ (4,898
  

 

 

   

 

 

 

The components of income tax expense (benefit) are as follows:

 

     2013     2012      2011  

Current:

       

Federal

   $ 14,466      $ 7,358       $ (837

State

     1,213        697         805   
  

 

 

   

 

 

    

 

 

 
     15,679        8,055         (32
  

 

 

   

 

 

    

 

 

 

Deferred:

       

Federal

     (597     2,512         11,989   

State

     (69     404         258   
  

 

 

   

 

 

    

 

 

 
     (666     2,916         12,247   
  

 

 

   

 

 

    

 

 

 

Income tax expense

   $ 15,013      $ 10,971       $ 12,215   
  

 

 

   

 

 

    

 

 

 

 

F-15


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

During 2013, 2012 and 2011, we realized tax benefits (deficiencies) of $0.4 million, $(0.5) million and $(0.4) million, respectively, related to share-based compensation plans that were recorded to additional paid-in-capital. The income tax provision differs from the amount of income tax determined by applying the statutory U.S. corporate tax rate to pre-tax amounts due to the following items:

 

     2013     2012     2011  

Federal tax at the statutory rate

     35.0     35.0     35.0

State income taxes, net of federal benefit

     2.8     2.1     4.5

Permanent differences and other

     (0.8 )%      (6.6 )%      (1.5 )% 
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     37.0     30.5     38.0
  

 

 

   

 

 

   

 

 

 

For 2012, the effective tax rate was positively impacted by the favorable permanent differences which related primarily to the non-taxable income recognized related to a settlement gain from post-retirement life insurance benefits described in Note 7.

The following is a reconciliation of the change in the amount of unrecognized tax benefits from January 30, 2011 to February 1, 2014:

 

     2013     2012     2011  

Beginning balance

   $ 631      $ 1,476      $ 3,062   

Increases due to:

      

Tax positions taken in prior years

     —          —          587   

Decreases due to:

      

Tax positions taken in prior years

     —          (765     —     

Settlements with taxing authorities

     —          —          (2,101

Lapse of statute of limitations

     (163     (80     (72
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 468      $ 631      $ 1,476   
  

 

 

   

 

 

   

 

 

 

As of February 1, 2014, there were no unrecognized tax benefits (“UTBs”) that, if recognized, would affect the effective tax rate. We recognize interest and penalties related to UTBs in income tax expense. During the fiscal years ended February 1, 2014, February 2, 2013 and January 28, 2012, the amount of interest and penalties related to UTBs was insignificant. The total amount of accrued interest and accrued penalties related to UTBs as of February 1, 2014 and February 2, 2013 was also insignificant.

UTBs decreased in 2013 and 2012 due to tax positions taken and lapse of statute of limitations. UTBs decreased in 2011 primarily due to settlements related to the completion of federal examinations for 2007 and 2008.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the tax years 2010 through 2012. The Company’s state tax returns are open to audit under similar statute of limitations for the tax years 2008 through 2012.

 

7. Employee Benefit Plans

We have a defined contribution retirement plan (a 401(k) plan) covering employees who are at least 21 years of age, have completed at least one year of service and who work at least 1,000 hours annually. Under the profit sharing portion of the plan, we can make discretionary contributions which vest at a rate of 20 percent per year after two years of service. During 2013, 2012 and 2011, we matched 50 percent of an employee’s voluntary pre-tax contributions up to a maximum of four percent of an employee’s compensation. Our matching portion vests in accordance with the plan’s vesting schedule. Total Company contributions to the retirement plan, net of forfeitures, were $1.5 million for 2013 and $1.2 million for each of 2012 and 2011, included in SG&A.

We have an executive deferral plan providing officers, key executives and director-level employees with the opportunity to defer receipt of salary, bonus and other compensation. The plan allows for company discretionary contributions. During 2013 and 2012, we matched contributions up to 10 percent of salary and bonuses deferred at a rate of 100 percent for officers and key executives and a rate of 50 percent for directors. In addition, during 2012, we made an additional discretionary contribution totaling $6.7 million related to the curtailment and settlement of the split dollar retirement benefit described below. During 2011, we matched contributions up to 10 percent of salary and bonus at a rate of 50 percent for officers and key executives and a rate of 25 percent for directors.

Matching contributions for 2011, 2012 and 2013 and related investment earnings vest at 20 percent per year in each of years four through eight, at which time a participant is fully vested. The additional discretionary contribution made in 2012 and related investment earnings cliff vest at age 62. The executive deferral plan liability was $12.5 million and $10.7 million at February 1, 2014 and February 2, 2013, respectively, and is included in Other liabilities in the Consolidated Balance Sheets. The expense for this plan, net of forfeitures, was $0.6 million, $6.9 million and $0.4 million in 2013, 2012 and 2011, respectively.

 

F-16


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

We provide an executive split-dollar life insurance benefit which provides officers, key executives and director-level employees with pre-retirement life insurance benefits based upon three to five times the current annual compensation. Effective December 31, 2012, active employees and substantially all retirees were no longer eligible for the post-retirement life insurance benefit of one-half to two and one-half times final base salary through an agreement between the company and the insureds resulting in a curtailment and settlement of plan benefits as detailed below. In addition to the discretionary contribution to the executive deferral plan described above, we made cash payments to retirees totaling $1.6 million as a result of this change. The gain due to settlement of the post-retirement benefit of $7.7 million was more than offset by the cost of payments to retirees and executive deferral plan contributions. The curtailment and settlement resulted in a remeasurement of the benefit obligation on December 31, 2012 using a discount rate of 3.8%. The discount rate used to determine the benefit obligation was 4.5% and 3.8% as of February 1, 2014 and February 2, 2013, respectively.

The following reflects the change in the post-retirement benefit obligation included in Other liabilities in the Consolidated Balance Sheets:

 

     February 1,
2014
    February 2,
2013
 

Benefit obligation at beginning of year

   $ 1,886      $ 9,212   

Service cost

     —          790   

Interest cost

     72        404   

Actuarial (gains) losses

     (227     1,979   

Curtailment

     —          (1,272

Settlement

     —          (9,227
  

 

 

   

 

 

 

Benefit obligation at end of year

   $ 1,731      $ 1,886   
  

 

 

   

 

 

 

The following reflects the components of net periodic post-retirement benefit (income) cost:

 

     2013      2012     2011  

Service cost

   $ —         $ 790      $ 655   

Interest cost

     72         404        366   

Amortization of loss

     8         93        —     

Gain due to settlement

     —           (7,680     —     
  

 

 

    

 

 

   

 

 

 

Net periodic post-retirement benefit cost (income)

   $ 80       $ (6,393   $ 1,021   
  

 

 

    

 

 

   

 

 

 

Amounts included in Accumulated other comprehensive loss consisted of:

 

     February 1,
2014
     February 2,
2013
 

Total net actuarial loss

   $ 79       $ 315   

In connection with the executive deferral and executive split-dollar life insurance plans, whole life insurance contracts were purchased on the related participants. At February 1, 2014 and February 2, 2013, the cash surrender value of these policies was $18.4 million and $17.7 million, respectively, and is included in Other assets in the Consolidated Balance Sheets.

We have a noncontributory executive retiree medical plan wherein eligible retired executives may continue their pre-retirement medical, dental and vision benefits through age 65. The postretirement benefit liability was $0.5 million at February 1, 2014 and $0.4 million at February 2, 2013. Accumulated other comprehensive loss on the Consolidated Balance Sheets includes $0.2 million for this plan at February 1, 2014 and February 2, 2013. The expense recorded in Net income for 2013, 2012 and 2011 was insignificant.

 

8. Shareholders’ Equity

Dividend

On June 18, 2013, the Board of Directors approved the initiation of a regular quarterly dividend of $0.05 per share or $0.20 on an annual basis. In 2013, we paid a quarterly dividend of $0.05 per common share on July 19, 2013, October 18, 2013 and January 17, 2014. In 2012, we paid a special cash dividend of $1.00 per common share on December 24, 2012.

On March 12, 2014, the Company announced that its Board of Directors declared a quarterly dividend of $0.05 per common share which will be paid on April 18, 2014 to shareholders of record on April 4, 2014.

 

F-17


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

Stock Repurchase Plan

During 2013, 2012 and 2011, we repurchased 87,742 shares, 574,686 shares and 1,653,841 shares of our common stock in the open market at a total cost of $1.1 million, $3.9 million and $12.1 million, respectively. Stock repurchases for taxes due on the vesting of employee stock awards during 2013, 2012 and 2011 included 87,742, 123,770 and 1,566,910 shares, respectively, purchased on the open market under a Board of Directors authorized plan. On June 14, 2011, the Board of Directors approved an increase of 2.5 million shares in the number of shares of the Company’s stock which the Company would be authorized to re-purchase. As of February 1, 2014, there are 803,191 shares which can be repurchased pursuant to the Board of Directors’ current authorization.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (the “Stock Purchase Plan”) whereby all employees who complete six months of employment and who work on a full-time basis or are regularly scheduled to work more than 20 hours per week are eligible to participate in the Stock Purchase Plan. Participants in the Stock Purchase Plan may purchase shares of the Company’s common stock at 85% of the lower of the fair market value of the Company’s stock determined at either the beginning or the end of each semi-annual option period. Shares eligible under the Stock Purchase Plan, which is effective for the years 1997 through 2015, are limited to 2.8 million shares in the aggregate, with no more than 200,000 shares being made available in each calendar year, excluding carryover from previous years. In 2013, 2012 and 2011, the participants acquired 82,705 shares, 64,170 shares and 112,139 shares of common stock at weighted-average per share prices of $8.38, $5.79 and $6.61, respectively. The fair value of Stock Purchase Plan shares was estimated using the Black-Scholes call option value method with the following weighted-average assumptions for 2013: expected volatility of 39.42%, expected dividend yield of 0.7%, a risk-free interest rate of 0.1%, a present-value discount factor of 1.0% and an expected term of six months. Share-based compensation expense for the Stock Purchase Plan was $0.2 million, $0.1 and $0.3 million in 2013, 2012 and 2011, respectively.

Omnibus Plan

Our Omnibus Plan provides that shares of common stock may be granted to certain Key Employees, Non-Employee Directors, and Advisor Participants, as defined, through non-qualified stock options, incentive stock options, stock appreciation rights, performance awards, restricted stock, or any other award made under the terms of the plan. The Board of Directors, or its delegated authority, determines the exercise price and all other terms of all grants. The shares will be issued from authorized and unissued shares of our common stock. Expired and forfeited awards become available for re-issuance. Vesting and exercise are contingent on continued employment.

The following table presents the number of awards authorized and available for grant under the Omnibus Plan at February 1, 2014 (shares in thousands):

 

     Shares  

Total awards authorized

     10,500   

Awards available for grant

     4,121   

Stock Options

In accordance with the Omnibus Plan, the exercise price of an option cannot be less than the fair value on the grant date. In general, one-third of the awards granted become exercisable on each of the third, fourth and fifth anniversary dates of grant and the awards expire seven years after the date of grant.

A summary of stock option information for the year ended February 1, 2014 is as follows (shares in thousands):

 

     Number of
Shares
    Weighted-
Average
Exercise Price
     Weighted-Average
Remaining
Contractual Term
     Aggregate
Intrinsic
Value
 
          
          

Outstanding at February 2, 2013

     1,529      $ 8.63         

Granted

     4        14.40         

Exercised

     (496     9.16         

Cancelled or forfeited

     (180     14.11         
  

 

 

   

 

 

       

Outstanding at February 1, 2014

     857      $ 7.20         6.8 years       $ 4,494   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable stock options at February 1, 2014

     368      $ 7.26         5.3 years       $ 1,931   
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value in the table above represents the excess of our closing stock price on January 31, 2014 ($12.38 per share) over the exercise price, multiplied by the applicable number of in-the-money options. This amount changes based on the fair market value of our common stock. There were 0.8 million in-the-money options outstanding at February 1, 2014. The total number of in-the-money options exercisable at February 1, 2014 was 0.3 million.

 

F-18


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

As of February 1, 2014, there was $0.8 million of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted-average period of 0.7 years using the mid-point method. The weighted-average grant-date fair value of options granted was $7.39, $3.93 and $4.36 during 2013, 2012, and 2011, respectively. The total intrinsic value of stock options exercised was $2.3 million, $0.1 million and $0.6 million during 2013, 2012 and 2011, respectively. The total tax benefit realized from the exercise of stock options was $0.5 million, $0 and $0.1 million during 2013, 2012 and 2011, respectively.

The fair value of each stock option granted during 2013, 2012 and 2011 was estimated at the date of grant using the Black-Scholes options pricing model with the following weighted-average assumptions:

 

     2013     2012     2011  

Expected term

     5.2 years        4.1-5.3 years        4.1 years   

Risk-free interest rate

     1.8     0.9     1.9

Volatility

     64.4     62.9% - 70.8     69.7

Dividend yield

     1.4     0     0

The expected volatility is based on the historical volatility of our stock price over assumed expected terms. The risk-free interest rate is estimated from yields of U.S. Treasury instruments of varying maturities with terms consistent with the expected terms of the options. The expected term of an option is calculated from a lattice model using historical employee exercise data.

In December 2012, as a result of paying a special cash dividend, all outstanding stock options were modified to decrease the exercise price and increase the number of options in order to maintain the original grant fair value. No incremental stock compensation expense resulted from the modification.

Restricted Stock and Performance Share Awards

We have issued restricted stock and performance share awards to eligible Key Employees, Non-Employee Directors, and Advisor Participants, as defined in the Omnibus Plan. All restricted stock awards have restriction periods tied primarily to employment, and all performance share awards have vesting tied to internal or market-based performance and service. Shares awarded under the Omnibus Plan entitle the shareholder to all rights of common stock ownership except that the shares may not be sold, transferred, pledged, exchanged or otherwise disposed of during the restriction period. Vesting for most awards is based on the service period and vesting generally occurs between two and three years following the date of grant. Unvested shares are forfeited upon termination of employment. The total value of share-based compensation expense for restricted stock and performance share awards is based on the closing price of our common stock on the date of grant, except for market-based performance shares. During 2013, we granted 301,000 performance shares for which the value was determined using a Monte-Carlo simulation model. Performance share awards provide the right to receive a share award at the end of a specified period in which a performance goal based on total shareholder return has been established.

The following table summarizes non-vested stock activity for the year ended February 1, 2014 (shares in thousands):

 

     Restricted Stock Awards      Performance Share Awards  
   Shares     Weighted-
Average
Grant Date
Fair Value
     Shares     Weighted-
Average
Grant Date
Fair Value
 
         
         
         

Non-vested at February 2, 2013

     996      $ 7.38         744      $ 8.32   

Granted

     355        11.40         301        14.59   

Vested

     (340     8.28         —          —     

Cancelled or forfeited

     (56     7.94         (22     11.95   
  

 

 

   

 

 

    

 

 

   

 

 

 

Non-vested at February 1, 2014

     955      $ 8.54         1,023      $ 10.09   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total unrecognized compensation cost

   $ 4,956         $ 4,594     

Weighted-average expected life remaining

     0.9 years           1.0 years     

 

F-19


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

The total fair value of restricted stock vested was $2.8 million, $2.3 million and $1.3 million 2013, 2012, and 2011, respectively. The total fair value of performance awards vested was $2.6 million and $1.1 million during 2012 and 2011, respectively. There were no performance shares vested in 2013.

Share-Based Compensation Expense

For the years ended February 1, 2014, February 2, 2013 and January 28, 2012, pre-tax share-based compensation expense was recorded as follows:

 

     2013      2012      2011  

Cost of merchandise sold

   $ 2,548       $ 3,275       $ 2,552   

Selling, general and administrative expenses

     4,743         2,928         1,269   
  

 

 

    

 

 

    

 

 

 

Total share-based compensation expense

   $ 7,291       $ 6,203       $ 3,821   
  

 

 

    

 

 

    

 

 

 

The total tax benefit recognized in the Consolidated Statements of Income related to share-based compensation expense was $2.8 million, $2.4 million and $1.5 million for 2013, 2012 and 2011, respectively. As a result of the dividend payments to holders of unvested restricted stock in December 2012, we recognized $0.6 million of additional share-based compensation expense in fiscal 2012.

 

9. Commitments and Contingencies

Product Purchase Commitments

As of February 1, 2014, we had various commitments to purchase $111.7 million of merchandise from certain vendors.

Investigation and Litigation

On July 24, 2013, the Securities and Exchange Commission (the “SEC”) informed us that it was conducting an investigation of the Company and made a request for voluntary production of documents and information. The request is focused on our recent restatement of prior financial statements and our change in auditors. We are cooperating fully with the SEC in this matter. We are unable to predict what action, if any, might be taken in the future by the SEC as a result of the matters that are the subject of the investigation or what impact the cost of responding to the investigation might have on our financial condition or results of operations.

We are involved in various routine legal proceedings incidental to the conduct of our business. Management, based upon the advice of outside legal counsel, does not believe that any of these legal proceedings will have a material adverse effect on our financial condition, results of operations or cash flows.

 

10. Store Closing Charges

We close under-performing stores in the normal course of business. We closed three stores in 2013 and five stores in 2012 and 2011 incurring lease termination and severance costs. Lease termination costs are net of estimated sublease income that could reasonably be obtained for the properties. In the event we are not successful in subleasing closed store locations when management expects, additional reserves for store closing costs may be recorded. During 2013, 2012 and 2011, we recorded net pre-tax charges of $0.1 million, $1.0 million and $1.2 million, respectively, for store closing charges, including adjustments to previously recorded store closing reserves for changes in estimated sublease income. Store closing charges are included in SG&A expenses in the Consolidated Statements of Income.

 

F-20


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

The following tables show the activity in the store closing reserve:

 

     Lease-
Related
    Severance
and Other
    Total  
      

Balance at January 29, 2011

   $ 4,961      $ 34      $ 4,995   

Charges

     663        494        1,157   

Payments

     (2,532     (528     (3,060
  

 

 

   

 

 

   

 

 

 

Balance at January 28, 2012

     3,092        —          3,092   

Charges

     782        271        1,053   

Payments

     (1,781     (233     (2,014
  

 

 

   

 

 

   

 

 

 

Balance at February 2, 2013

     2,093        38        2,131   

Charges

     (56     161        105   

Payments

     (2,002     (130     (2,132
  

 

 

   

 

 

   

 

 

 

Balance at February 1, 2014

   $ 35      $ 69      $ 104   
  

 

 

   

 

 

   

 

 

 

The store closing reserve at February 1, 2014, February 2, 2013 and January 28, 2012 includes a current portion (in Accrued expenses and other current liabilities) of $0.1 million, $1.2 million and $1.6 million, respectively, and a long-term portion (in Other liabilities) of $0, $0.9 million and $1.5 million, respectively.

 

11. Sales by Major Merchandise Category

We are a single business segment. The following table summarizes retail sales by major merchandise category:

 

     2013      2012      2011  

Ladies’ apparel and accessories

   $ 747,822       $ 746,616       $ 731,451   

Men’s apparel and accessories

     264,631         266,777         255,927   

Home

     173,070         150,347         135,122   

Other

     58,190         48,938         36,351   
  

 

 

    

 

 

    

 

 

 

Owned department sales

     1,243,713         1,212,678         1,158,851   

Leased department commissions

     19,858         19,688         19,100   
  

 

 

    

 

 

    

 

 

 

Net sales

   $ 1,263,571       $ 1,232,366       $ 1,177,951   
  

 

 

    

 

 

    

 

 

 

 

12. Quarterly Results of Operations (Unaudited)

 

     Year Ended February 1, 2014  
     13 Weeks Ended
May 4, 2013
     13 Weeks Ended
August 3, 2013
     13 Weeks Ended
November 2, 2013
     13 Weeks Ended
February 1, 2014
 

Net sales

   $ 321,364       $ 290,969       $ 290,453       $ 360,785   

Gross profit

     97,945         80,316         77,765         111,327   

Net income

     14,692         3,414         28         7,421   

Basic income per share

   $ 0.34       $ 0.08       $ 0.00       $ 0.17   

Diluted income per share

   $ 0.33       $ 0.08       $ 0.00       $ 0.16   

 

     Year Ended February 2, 2013  
     13 Weeks Ended
April 28, 2012
     13 Weeks Ended
July 28, 2012
     13 Weeks Ended
October 27, 2012
    14 Weeks Ended
February 2, 2013
 

Net sales

   $ 309,708       $ 280,372       $ 273,729      $ 368,557   

Gross profit

     91,864         73,819         70,690        106,257   

Net income (loss)

     10,833         2,306         (1,659     13,547   

Basic income (loss) per share

   $ 0.25       $ 0.05       $ (0.04   $ 0.31   

Diluted income (loss) per share

   $ 0.25       $ 0.05       $ (0.04   $ 0.30   

The sum of the quarterly per share amounts may not equal the annual amount because income per share is calculated independently for each quarter.

 

F-21


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

13. Related Party Transactions

One of our directors is the majority shareholder of the legal firm that is the Company’s general counsel. We believe amounts paid for these services are competitive with amounts that would be paid to a third party for similar services. Legal fees associated with these services were $0.2 million in 2013, 2012 and 2011. In addition, the director also participated in our 2013, 2012 and 2011 Incentive Plans related to his role as general counsel to the Company.

We leased three locations in 2013, 2012 and 2011 from a company for which one of our directors is Chairman and Chief Executive Officer. We paid approximately $0.8 million in base rent in 2013, 2012 and 2011. We believe amounts paid for leased space and other lease-related services are competitive with amounts that would be paid to a third party to lease similar space.

One of our directors, as a private investor, indirectly owns a minority interest in the entity which operates a secure location for and maintains certain of our data processing equipment. Expenses associated with this service were $0.4 million in 2013 and $0.3 million in 2012 and 2011. We entered this facility prior to our director’s investment. We believe amounts paid are competitive with amounts that would be paid to others for similar services.

 

F-22


Table of Contents

EXHIBIT INDEX

 

    3.1    Articles of Incorporation of Stein Mart, Inc., incorporated by reference to the Company’s Form S-1 Registration Statement No. 33-46322
    3.2    Bylaws of Stein Mart, Inc., amended January 21, 2014, incorporated by reference to the Company’s Form 8-K filed January 23, 2014
    4.1    Form of stock certificate for Common Stock, incorporated by reference to the Company’s Form S-1 Registration Statement No. 33-46322
    4.2    Amended and Restated Stein Mart, Inc. Employee Stock Purchase Plan, incorporated by reference to the Company’s Form S-8 Registration Statement filed on June 26, 2009
  10.1*    Form of Director’s and Officer’s Indemnification Agreement, incorporated by reference to the Company’s Form S-1 Registration Statement No. 33-46322
  10.2*    Stein Mart, Inc. 2001 Omnibus Plan as Amended and Restated Effective June 14, 2011, incorporated by reference to the Company’s Form 8-K filed on June 15, 2011
  10.3*    Form of Option Award Agreement for Key Employees, pursuant to Stein Mart, Inc. 2001 Omnibus Plan (filed herein)
  10.4    Form of Option Award Agreement for Non-Employee Directors, pursuant to Stein Mart, Inc. 2001 Omnibus Plan (filed herein)
  10.5*    Form of Restricted Share Award Agreement for Key Employees, pursuant to Stein Mart, Inc. 2001 Omnibus Plan (filed herein)
  10.6*    Form of Performance Share Award Agreement for Key Employees, pursuant to Stein Mart, Inc. 2001 Omnibus Plan (filed herein)
  10.7    Form of Restricted Share Award for Non-Employee Directors, pursuant to Stein Mart, Inc. 2001 Omnibus Plan (filed herein)
  10.8    Profit Sharing Plan, incorporated by reference to the Company’s Form S-1 Registration Statement No. 33-46322
  10.9*    PPO Executive Plan for Stein Mart, Inc., incorporated by reference to the Company’s Form 10-Q for the quarterly period ended May 1, 2010
  10.10*    Director Stock Option Plan, incorporated by reference to the Company’s Form S-1 Registration Statement No. 33-46322
  10.11*    Executive Split Dollar Agreement, incorporated by reference to the Company’s Form 10-K for the fiscal year ended January 1, 2000
  10.12*    Form of Letter Agreement Amendment to Split Dollar Agreement, incorporated by reference to the Company’s Form 8-K filed December 13, 2012
  10.13*    Executive Deferral Plan, amended November 1, 2002, incorporated by reference to the Company’s Form 10-K for the fiscal year ended January 31, 2004
  10.14*    Amended and Restated Executive Deferral Plan effective January 1, 2008 incorporated by reference to the Company’s Form 10-K for the year ended February 2, 2013


Table of Contents

 

  10.15*

  

 

Employment Agreement, dated March 1, 2014, between Stein Mart, Inc. and Brian R. Morrow (filed herein)

  10.16*    Employment Agreement, dated May 1, 2012, between Stein Mart, Inc. and Gary L. Pierce, incorporated by reference to the Company’s Form 8-K filed on May 2, 2012
  10.17*    Employment Agreement, dated July 31, 2013, between Stein Mart, Inc. and Gregory W. Kleffner (filed herein)
  10.18*    Employment Agreement, dated September 15, 2013, between Stein Mart, Inc. and David H. Hawkins (filed herein)
  10.19    Amended and Restated Credit Agreement dated as of October 28, 2011 among Stein Mart, Inc., Wells Fargo Bank, National Association as Administrative Agent, Collateral Agent, Swing Line Lender and LC Issuer, and Wells Fargo Capital Finance LLC as Sole Lead Arranger and Sole Bookrunner, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended October 29, 2011
  10.20    Amended and Restated Supply Agreement, dated May 30, 2006, between DSW Inc. and Stein Mart, Inc., incorporated by reference to the Company’s Form 8-K filed on June 5, 2006
  10.21    First Amendment to Amended and Restated Supply Agreement, dated August 26, 2008, between DSW Inc. and Stein Mart, Inc., incorporated by reference to the Company’s Form 10-Q for the quarterly period ended November 1, 2008
  10.22    Second Amendment to Amended and Restated Supply Agreement, dated February 23, 2012, between DSW Inc. and Stein Mart, Inc., incorporated by reference to the Company’s Form 10-Q for the quarterly period ended April 28, 2012
  10.23+    Amended and Restated Co-Brand and Private Label Credit Card Consumer Program Agreement by and between Stein Mart, Inc. and GE Capital Retail Bank, dated as of October 3, 2011, incorporated by reference to the Company’s Amendment No. 1 to Form 10-Q for the quarterly period ended October 29, 2011
  10.24    Law Firm Engagement Agreement with Stein Mart, Inc. dated June 8, 2011, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended April 30, 2011
  10.25    Renewal of Law Firm Agreement between the Company and Kirschner & Legler, P.A., dated April 1, 2013, incorporated by reference to the Company’s Form 10-K for the fiscal year ended February 2, 2013
  23.1    Consent of PricewaterhouseCoopers LLP (filed herein)
  23.2    Consent of KPMG LLP (filed herein)
  31.1    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herein)
  31.2    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herein)
  32.1    Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 (filed herein)
  32.2    Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (filed herein)
101    Interactive data files from Stein Mart, Inc.’s Annual Report on Form 10-K for the year ended February 1, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements

 

* Management contract or compensatory plan or arrangements.
+ Certain portions of the exhibit have been omitted pursuant to a confidential treatment order. An unredacted copy of the exhibit has been filed separately with the United States Securities Exchange Commission pursuant to a request for confidential treatment.

Exhibit 10.3

STEIN MART, INC.

2001 OMNIBUS PLAN

OPTION AWARD AGREEMENT FOR KEY EMPLOYEES

THIS AGREEMENT is made and entered into as of the date set forth on the signature page hereof by and between STEIN MART, INC. , a Florida corporation (“ Company ”), and the Key Employee of the Company whose signature is set forth on the signature page hereof (the “ Key Employee ”).

W I T N E S S E T H

WHEREAS , the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan (“Plan”), the terms of which, to the extent not stated herein, are specifically incorporated by reference in this Agreement;

WHEREAS , the purpose of the Plan is to permit Awards under the Plan to be granted to certain Key Employees of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS , the Key Employee is now employed or engaged by the Company or an Affiliate in a key employee capacity and the Company desires him or her to remain in such capacity, and to secure or increase his or her ownership of Shares in order to increase his or her incentive and personal interest in the success and growth of the Company; and

WHEREAS , defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

1. Option Grant . (a) Subject to the terms and conditions set forth herein, the Company hereby grants to the Key Employee an option (the “ Option ”) to purchase from the Company all or any part of the aggregate number of Shares (hereinafter referred to as the “ Option Stock ”) set forth on the signature page hereof, at the purchase price per Share set forth on the signature page hereof. The Option may not be exercised prior to the Initial Exercise Date set forth on the signature page hereof or after the Expiration Date set forth thereon, except that other than as provided herein, the Option shall not be exercisable after the termination of the Key Employee’s employment with the Company and all Affiliates. Absence of the Key Employee on leave approved by a duly elected officer of the Company, other than the Key Employee, shall not be considered a termination of employment during the period of such leave. The Option may be exercised in whole or in part (but any exercise shall be for whole Shares) by notice in writing to the Company. The aggregate purchase price for the Shares for which the Option is exercised shall be paid to the Company at the time of exercise in cash, Shares registered in the name of the Key Employee, or by a combination thereof, all as provided on the signature page hereof. The approval of the board of directors of the Company is required in order for Shares held by the Key


Employee for fewer than six months to be used in payment of the exercise price of the Option. Unless otherwise provided on the signature page hereof, the Option shall not be an Incentive Stock Option for purposes of Section 422 of the Code. Unless otherwise provided on the signature page hereof, the Option shall not have the “reload feature” described in Section 6.1 of the Plan, as of the date of grant.

(b) If the purchase price may be paid wholly or partly in Shares, any Shares tendered in payment thereof shall be free of all adverse claims and duly endorsed in blank by the Key Employee or accompanied by stock powers duly endorsed in blank. Shares tendered shall be valued at Fair Market Value on the date on which the Option is exercised. As used herein, “Fair Market Value” means the per Share closing price on the date in question in the principal market in which the Shares are then traded or, if no sales of Shares have taken place on such date, the closing price on the most recent date on which selling prices were quoted; provided, however, that for any Option that is not an Incentive Stock Option, the Committee in its discretion may elect to determine Fair Market Value with respect to such Shares, based on the average of the closing prices, as of the date of determination and a period of up to 20 trading days immediately preceding such date. If such proviso is to be applicable, the signature page hereof sets forth the number of trading days in such period.

2. Nontransferability of Option . This Option is not transferable other than by will or by the laws of descent and distribution. The Option may be exercised during the life of the Key Employee only by the Key Employee (or his/her legal representative).

3. Exercise of Option . (a) Except as provided herein, the Option shall be exercisable only prior to the Expiration Date, and then only as set forth in the following table:

 

Years From Grant Date

   Cumulative Fraction
of Shares Optioned
Which Vest & Are Exercisable

[insert vesting schedule]

  

(b) [Insert exceptions to forfeiture provisions and acceleration provisions, if any. Exceptions include death, disability, qualified retirement and termination for reasons other than for cause. Also include Change in Control as defined in the Plan.]

4. Beneficiary . (a) The person whose name appears on the signature page hereof after the caption “Beneficiary” or any successor designated by the Key Employee in accordance herewith (the person who is the Key Employee’s Beneficiary at the time of his death herein referred to as the “ Beneficiary ”) shall be entitled to exercise the Option, to the extent it is exercisable, after the death of the Key Employee. The Key Employee may from time to time revoke or change his Beneficiary without the consent of any prior Beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Key Employee’s death, and in no event shall any designation be effective as of a date prior to such receipt.

 

2


(b) If no such Beneficiary designation is in effect at the time of a Key Employee’s death, or if no designated Beneficiary survives the Key Employee or if such designation conflicts with law, the Key Employee’s estate shall be entitled to exercise the Option, to the extent it is exercisable after the death of the Key Employee. If the Committee is in doubt as to the right of any person to exercise the Option, the Company may refuse to recognize such exercise, without liability for any interest or dividends on the Option Stock, until the Committee determines the person entitled to exercise the Option, or the Company may apply to any court of appropriate jurisdiction and such application shall be a complete discharge of the liability of the Company therefore.

5. No Rights As Stockholder . The Key Employee shall have no rights as a holder of the Option Stock until the issuance of a certificate for the Option Stock.

6. Tax Withholding . (a) It shall be a condition of the obligation of the Company to issue Option Stock to the Key Employee or the Beneficiary, and the Key Employee agrees, that the Key Employee shall pay to the Company upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state, or local income or other taxes incurred by reason of the exercise of the Option.

(b) If the Option is not an Incentive Stock Option, the Key Employee may elect to have the Company withhold that number of Shares of Option Stock otherwise issuable to the Key Employee upon exercise of the Option or to deliver to the Company a number of Shares, in each case, having a Fair Market Value on the Tax Date (as defined below) equal to the minimum amount required to be withheld as a result of such exercise. The election must be made in writing and must be delivered to the Company prior to the Tax Date. If the number of shares so determined shall include a fractional share, the Key Employee shall deliver cash in lieu of such fractional share. All elections shall be made in a form approved by the committee and shall be subject to disapproval, in whole or in part by the Committee. As used herein, Tax Date means the date on which the Key Employee must include in his gross income for federal income tax purposes the fair market value of the Option Stock over the purchase price therefore.

7. Adjustments in Event of Change in Shares . In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of securities of the Company, or other similar corporate transaction or event affects the Shares issuable on exercise of the Option, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust the number and type of Shares awarded pursuant to this Agreement, or the terms, conditions, or restrictions of this Agreement; provided, however, that with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto; and provided further, that the number of Shares subject to any Award payable or denominated in Shares shall always be a whole number.

 

3


8. Powers of Company Not Affected . The existence of the Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any combinations, subdivision or reclassification of the Shares or any reorganization, merger, consolidation, business combination, exchange of Shares, or other change in the Company’s capital structure or its business, or any issue of bonds, debentures or stock having rights or preferences equal, superior or affecting the Option Stock or the rights thereof or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Nothing in this Agreement shall confer upon the Key Employee any right to continue in the employment of the Company or any Affiliate, or interfere with or limit in any way the right of the Company or any Affiliate to terminate the Key Employee’s employment at any time.

9. Interpretation by Committee . The Key Employee agrees that any dispute or disagreement which may arise in connection with this Agreement shall be resolved by the Committee, in its sole discretion, and that any interpretation by the Committee of the terms of this Agreement or the Plan and any determination made by the Committee under this Agreement or the Plan may be made in the sole discretion of the Committee and shall be final, binding, and conclusive. Any such determination need not be uniform and may be made differently among Key Employees awarded Option Stock.

10. Miscellaneous . (a) This Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(b) This Agreement may not be amended or modified except by the written consent of the parties hereto.

(c) The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.

(d) Any notice, filing or delivery hereunder or with respect to Option Stock shall be given to the Key Employee at either his usual work location or his home address as indicated in the records of the Company, and shall be given to the Committee or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32207, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

(e) This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Key Employee, the Beneficiary and the personal representative(s) and heirs of the Key Employee.

 

4


IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer, and the Key Employee has hereunto affixed his hand, all on the day and year set forth below.

 

STEIN MART, INC.
By:  

 

Its:  

 

Signed Electronically                

 

This Option is a Non-Qualified Stock Option
No. of Shares of Option Stock:  

 

Purchase Price Per Share: $  

 

Grant Date:  

 

Expiration Date:  

 

 

5

Exhibit 10.4

STEIN MART, INC.

2001 OMNIBUS PLAN

OPTION AWARD AGREEMENT FOR NON-EMPLOYEE DIRECTORS

THIS AGREEMENT is made and entered into as of the date set forth on the signature page hereof by and between STEIN MART, INC. , a Florida corporation (“Company”), and the non-employee director of the Company whose signature is set forth on the signature page hereof (the “ Non-Employee Director ”).

W I T N E S S E T H

WHEREAS , the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan (“Plan”), the terms of which, to the extent not stated herein, are specifically incorporated by reference in this Agreement;

WHEREAS , the purpose of the Plan is to permit Awards under the Plan to be granted to certain Non-Employee Directors of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS , the Non-Employee Director is now acting for the Company in a non-employee director capacity and the Company desires him or her to remain in such capacity, and to secure or increase his or her ownership of Shares in order to increase his or her incentive and personal interest in the success and growth of the Company; and

WHEREAS , defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

1. Option Grant . The Company hereby grants to the Non-Employee Director an initial Option to purchase from the Company all or any part of 4,000 Shares in accordance with Section 10.1(a) of the Company’s 2001 Omnibus Plan at the purchase price set forth on the signature page of this Agreement.

2. Nontransferability of Option . Options granted the Non-Employee Director under the Plan are not transferable other than by will or by the laws of descent and distribution. The Option may be exercised during the life of the Non-Employee Director only by the Non-Employee Director (or his/her legal representative).


3. Exercise of Option . The exercise of Options granted to Non-Employee Directors is governed in all respects by the terms of the Plan, particularly Section 10.1(b) and Section 10.1(c). Except as provided herein, the Option shall be exercisable only prior to the Expiration Date, and then only as set forth in the following table:

 

Years From Grant Date

   Cumulative Fraction
of Shares Optioned
Which Is Exercisable
 

After 3 Years

     33

After 4 Years

     66

After 5 Years

     100

4. Beneficiary .

(a) The person whose name appears on the signature page hereof after the caption “Beneficiary” or any successor designated by the Non-Employee Director in accordance herewith (the person who is the Non-Employee Director’s Beneficiary at the time of his death herein referred to as the “Beneficiary”) shall be entitled to exercise any Option which has been granted, to the extent it is exercisable, after the death of the Non-Employee Director. The Non-Employee Director may from time to time revoke or change his Beneficiary without the consent of any prior Beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Non-Employee Director’s death, and in no event shall any designation be effective as of a date prior to such receipt.

(b) If no such Beneficiary designation is in effect at the time of a Non-Employee Director’s death, or if no designated Beneficiary survives the Non-Employee Director or if such designation conflicts with law, the Non-Employee Director’s estate shall be entitled to exercise any Option granted prior to death of the Non-Employee Director, to the extent it is exercisable, after the death of the Non-Employee Director. If the Committee is in doubt as to the right of any person to exercise the Option, the Company may refuse to recognize such exercise, without liability for any interest or dividends on the Option Stock, until the Committee determines the person entitled to exercise the Option, or the Company may apply to any court of appropriate jurisdiction and such application shall be a complete discharge of the liability of the Company therefor.

5. No Rights As Stockholder . The Non-Employee Director shall have no rights as a holder of the Option Stock until the issuance of a certificate for the Option Stock.

6. Adjustments in Event of Change in Shares . Section 4.3 of the Plan shall govern adjustments in the event of a change in Shares.

7. Miscellaneous . (a) This Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(b) This Agreement may not be amended or modified except by the written consent of the parties hereto.

 

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(c) The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.

(d) Any notice, filing or delivery hereunder or with respect to Option Stock shall be given to the Non-Employee Director at either his usual work location or his home address as indicated in the records of the Company, and shall be given to the Committee or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32202, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Non-Employee Director, the Beneficiary and the personal representative(s) and heirs of the Non-Employee Director.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer, and the Non-Employee Director has hereunto affixed his hand, all on the day and year set forth below.

 

STEIN MART, INC.
By:  

 

Its:  

 

Signed Electronically

No. of Shares of Option Stock:  

 

Purchase Price Per Share: $  

 

Date of Agreement:  

 

Grant Date:  

 

Expiration Date:  

 

 

3

Exhibit 10.5

STEIN MART, INC.

2001 OMNIBUS PLAN

RESTRICTED SHARE AWARD AGREEMENT FOR KEY EMPLOYEES

THIS AGREEMENT is made and entered into as of the date set forth on the signature page hereof by and between STEIN MART, INC., a Florida corporation (“ Company ”), and the Key Employee of the Company whose signature is set forth on the signature page hereof (the “ Key Employee ”).

W I T N E S S E T H

WHEREAS , the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan (“ Plan ”), the terms of which, to the extent not stated herein, are specifically incorporated by reference in this Agreement;

WHEREAS , the purpose of the Plan is to permit Awards under the Plan to be granted to certain Key Employees of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS , the Key Employee is now employed or engaged by the Company or an Affiliate in a key employee capacity and the Company desires him or her to remain in such capacity, and to secure or increase his or her ownership of Shares in order to increase his or her incentive and personal interest in the success and growth of the Company; and

WHEREAS , defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

1. Restricted Share Grant . Subject to the terms and conditions set forth herein, the Company hereby grants to the Key Employee the number of restricted shares (the “ Restricted Shares ”) of the Company’s common stock set forth on the signature page hereof, at the value per Share set forth on the signature page hereof.

2. Nontransferability of Shares . The Restricted Shares are not transferable other than by will or by the laws of descent and distribution.

3. Risk of Forfeiture; Vesting .

(a) The Restricted Shares are subject to a substantial risk of forfeiture and the risk of forfeiture is removed and the Restricted Shares become vested (the “ Vesting ”) in the Key Employee, as provided below only if the Key Employee remains employed by the Company or its affiliates on the dates set forth below:

[insert vesting schedule]

(b) [Insert exceptions to forfeiture and events which accelerate vesting, if any].


4. Certificate Retained . The certificate evidencing the Restricted Shares that are the subject of this Grant will be held by the Company in safekeeping and delivered to the Key Employee upon vesting as described above. If the Restricted Shares are forfeited, then the Company retains the right to cause the certificate to be cancelled of record and the Restricted Shares shall thereupon be cancelled and no longer outstanding.

5. Rights As Stockholder . The Key Employee shall have all rights as a holder of the Restricted Shares until and unless the Restricted Shares are forfeited and cancelled as provided above. [Insert restrictions on receipt of dividends, if any]

6. Tax Withholding . (a) It shall be a condition of the Grant of the Restrictive Shares provided herein that the Key Employee, and the Key Employee agrees, that the Key Employee shall pay to the Company upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state, or local income, employment or other taxes incurred by reason of the Grant provided herein or the Vesting thereof. The amount that will be due from the Key Employee, if any, will be determined at the time the risk of forfeiture is removed and Vesting occurs, or if a Section 83(b) election (defined below) is made, as of the date of this Grant.

(b) In the event that a Section 83(b) election is not made, the Key Employee may elect to have the Company withhold that number of Restricted Shares otherwise deliverable to the Key Employee upon the Vesting of the Restricted Shares or to deliver to the Company a number of Shares, in each case, having a Fair Market Value on the date of Vesting equal to the minimum amount required to be withheld as a result of such exercise. The election must be made in writing and must be delivered to the Company prior to the date of Vesting. If the number of shares so determined shall include a fractional share, the Key Employee shall deliver cash in lieu of such fractional share. All elections shall be made in a form approved by the committee and shall be subject to disapproval, in whole or in part by the Committee.

(c) The Key Employee has reviewed with the Key Employee’s own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement. The Key Employee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Key Employee understands that the Key Employee (and not the Company) shall be responsible for the Key Employee’s own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Key Employee understands that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the fair market value of the Restricted Shares as of the date any restrictions on the Shares lapse. In this context, “restriction” includes the Vesting conditions set forth in Section 3 hereof. The Key Employee understands that the Key Employee may elect to be taxed at the time the Restricted Shares are granted under this Agreement rather than when they become Vested and no longer subject to a substantial risk of forfeiture by filing an election under Section 83(b) of the Code with the I.R.S. within 30 days from the date of Grant.

 

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THE KEY EMPLOYEE ACKNOWLEDGES THAT IT IS THE KEY EMPLOYEE’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), EVEN IF THE KEY EMPLOYEE REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE KEY EMPLOYEE’S BEHALF.

7. Powers of Company Not Affected . The existence of the Restricted Shares shall not affect in any way the right or power of the Company or its stockholders to make or authorize any combinations, subdivision or reclassification of the Shares or any reorganization, merger, consolidation, business combination, exchange of Shares, or other change in the Company’s capital structure or its business, or any issue of bonds, debentures or stock having rights or preferences equal, superior or affecting the Option Stock or the rights thereof or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Nothing in this Agreement shall confer upon the Key Employee any right to continue in the employment of the Company or any Affiliate, or interfere with or limit in any way the right of the Company or any Affiliate to terminate the Key Employee’s employment at any time.

8. Interpretation by Committee . The Key Employee agrees that any dispute or disagreement which may arise in connection with this Agreement shall be resolved by the Committee, in its sole discretion, and that any interpretation by the Committee of the terms of this Agreement or the Plan and any determination made by the Committee under this Agreement or the Plan may be made in the sole discretion of the Committee and shall be final, binding, and conclusive. Any such determination need not be uniform and may be made differently among Key Employees awarded Option Stock.

9. Miscellaneous . (a) This Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(b) This Agreement may not be amended or modified except by the written consent of the parties hereto.

(c) The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.

(d) Any notice, filing or delivery hereunder or with respect to Restricted Shares shall be given to the Key Employee at either his usual work location or his home address as indicated in the records of the Company, and shall be given to the Committee or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32202, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

(e) This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Key Employee, the Beneficiary and the personal representative(s) and heirs of the Key Employee.

 

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IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer, and the Key Employee has hereunto affixed his hand, all on the day and year set forth below.

 

STEIN MART, INC.
By:  

 

Its:  

 

Signed Electronically

 

No. of Restricted Shares:  

 

Grant Date:  

 

 

4

Exhibit 10.6

STEIN MART, INC.

2001 OMNIBUS PLAN

PERFORMANCE SHARE AWARD AGREEMENT

THIS AGREEMENT is made and entered into as of the date set forth on the signature page hereof (the “ Grant Date ) by and between STEIN MART, INC ., a Florida corporation (“ Company ), and the Participant whose signature is set forth on the signature page hereof (the “ Participant” ).

WITNESSETH

WHEREAS , the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan (“ Omnibus Plan ”) and the Stein Mart [insert performance period] Long Term Incentive Compensation Plans (the “ Incentive Plans” and together with the Omnibus, the “ Plans ”), the terms of both of which, to the extent not stated herein, are specifically incorporated by reference in this Agreement;

WHEREAS , the purpose of the Plans is to permit Awards under the Incentive Plans to be granted to certain Participants of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS , the Participant is now employed in an officer, management or advisory capacity and the Company desires him or her to remain in such capacity, to secure or increase his or her ownership of shares of the Company s common stock in order to increase his or her incentive and personal interest In the success and growth of the Company; and

WHEREAS , defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plans.

NOW, THEREFORE , in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

1. Performance Share Grant . Subject to the terms and conditions set forth herein, the Company hereby grants to the Participant the number of performance shares (the “ Performance Shares ) of the Company’s common stock set forth on the signature page hereof, at the value per Share set forth on the signature page hereof.

2. Nontransferability of Shares . The Performance Shares are not transferable other than by will or by the laws of descent and distribution.

3. Grant and Vesting .

(a) The Performance Shares will be earned by the Participant (subject to Vesting), as provided below only as, when and to the extent the Performance Goals (defined in the Incentive Plans) are met as of the end of the three year period of [insert performance period] Plan Years (the Award Date). If the Performance Goals are not met, than the Performance Shares granted herein shall lapse and be of no further force or effect.


(b) In addition, the Performance Shares subject to this Grant shall Vest as follows (the “ Service Condition ”): [insert vesting percentages] of such Performance Shares shall vest upon the Award Date if the Participant receiving such award remains employed by the Company on the Award Date. Notwithstanding the foregoing, if a Participants employment with the Company is terminated because of [insert exceptions to forfeiture provisions, if any], then the Service Condition shall be deemed to have been met as to a portion of the unvested Performance Shares as equals the percent of the Service Condition which has been met as of the Termination Event. [Include as example if exceptions to forfeiture provisions are approved by Committee - By way of example, if a Participant dies 12 months following the Award Date of the Participation Award, then the Participant (or the Participants estate) will receive 1/3rd of the Performance Shares which would otherwise have Vested upon satisfaction of the Service Condition (12 months as a percent of 36 months).]

4. Certificate Issued . The certificate(s) evidencing the Performance Shares that are the subject of this Grant will be issued only upon satisfaction of the appropriate Performance Goals and shall not be treated as outstanding until the satisfaction of such condition.

5. Rights As Stockholder . The Participant shall have no rights as a holder of the Performance Shares until and unless and to the extent the Performance Shares are deemed to have been issued on the Award Date based on the Performance Goals achieved, subject, however to forfeiture to the extent such Performance Shares do not Vest.

6. Tax Withholding .

(a) It shall be a condition of the Grant of the Performance Shares provided herein that the Participant, and the Participant agrees, that the Participant shall pay to the Company upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state, or local income, employment or other taxes incurred by reason of the Grant provided herein or the Vesting thereof. The amount that will be due from the Participant, if any, will be determined at the time the risk of forfeiture is removed and Vesting occurs.

(b) The Participant has reviewed with the Participant’s own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant understands that the Participant (and not the Company) shall be responsible for the Participant’s own tax liability that may arise as a result of the transactions contemplated by this Agreement under the Internal Revenue Code of 1986, as amended (the “Code”) which taxes as ordinary income the fair market value of the Performance Shares as of the Award Date.

7. Powers of Company Not Affected . The existence of the Performance Shares shall not affect in any way the right or power of the Company or its stockholders to make or authorize any combinations, subdivision or reclassification of the Shares or any reorganization, merger, consolidation, business combination, exchange of Shares, or other change in the Company s capital structure or its business, or any issue of bonds, debentures or stock having rights or preferences equal, superior or affecting the Option Stock or the rights thereof or

 

2


dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Nothing in this Agreement shall confer upon the Participant any right to continue in the employment of the Company or any Affiliate, or Interfere with or limit in any way the right of the Company or any Affiliate to terminate the Participant’s employment at any time.

8. Interpretation by Committee . The Participant agrees that any dispute or disagreement which may arise in connection with this Agreement shall be resolved by the Committee, in its sole discretion, and that any interpretation by the Committee of the terms of this Agreement or the Plan and any determination made by the Committee under this Agreement or the Plan may be made in the sole discretion of the Committee and shall be final, binding, and conclusive. Any such determination need not be uniform and may be made differently among Participants awarded Option Stock,

9. Miscellaneous . (a)This Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(b) This Agreement may not be amended or modified except by the written consent of the parties hereto.

(c) The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.

(d) Any notice, filing or delivery hereunder or with respect to Performance Shares shall be given to the Participant at either his usual work location or his home address as indicated in the records of the Company, and shall be given to the Committee or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32202, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

(e) This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Participant, the Beneficiary and the personal representative(s) and heirs of the Participant.

 

3


IN WITNESS WHEREOF , the Company has caused this instrument to be executed by its duly authorized officer, and the Participant has hereunto affixed his hand, all on the day and year set forth below.

 

STEIN MART, INC.
By:  

 

  D. Hunt Hawkins,
  Chief Operating Officer

 

No. of Performance Shares:  

 

 

Grant Date:  

 

 

Per Share Value:  

 

 

4

Exhibit 10.7

STEIN MART, INC.

2001 OMNIBUS PLAN

RESTRICTED SHARE AWARD AGREEMENT FOR

NON-EMPLOYEE DIRECTOR

THIS AGREEMENT is made and entered into as of the date set forth on the signature page hereof by and between STEIN MART, INC. , a Florida corporation (“ Company ”), and the Non-Employee Director of the Company whose signature is set forth on the signature page hereof (the “ Non-Employee Director ”).

W I T N E S S E T H

WHEREAS, the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan (“ Plan ”), the terms of which, to the extent not stated herein, are specifically incorporated by reference in this Agreement;

WHEREAS, one of the purposes of the Plan is to permit Awards under the Plan to be granted to certain Non-Employee Directors of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS, the Non-Employee Director is now employed or engaged by the Company or an Affiliate in a Non-Employee Director capacity and the Company desires him or her to remain in such capacity, and to secure or increase his or her ownership of Shares in order to increase his or her incentive and personal interest in the success and growth of the Company; and

WHEREAS, defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

1. Restricted Share Grant . Subject to the terms and conditions set forth herein, the Company hereby grants to the Non-Employee Director the number of restricted shares (the “ Restricted Shares ”) of the Company’s common stock set forth on the signature page hereof, at the value per Share set forth on the signature page hereof.

2. Nontransferability of Shares . The Restricted Shares are not transferable other than by will or by the laws of descent and distribution.

3. Risk of Forfeiture; Vesting .

The Restricted Shares are subject to a substantial risk of forfeiture and the risk of forfeiture is removed and the Restricted Shares become vested (the “ Vesting ”) in the Non-Employee Director only if he or she remains a Director [insert vesting dates and percentages]. Notwithstanding the foregoing, if the Non-Employee Director’s service as a Non-Employee Director with the Company is terminated because of [insert exceptions to termination provision, if any] or after the date hereof, the Restricted Shares will fully vest on the occurrence of such event and the risk of forfeiture with respect thereto will thereupon be removed.


4. Certificate Retained . The certificate evidencing the Restricted Shares that are the subject of this Grant will be held by the Company in safekeeping and delivered to the Non-Employee Director upon vesting as described above. If the Restricted Shares are forfeited, then the Company retains the right to cause the certificate to be cancelled of record and the Restricted Shares shall thereupon be cancelled and no longer outstanding.

5. Rights As Stockholder . The Non-Employee Director shall have all rights as a holder of the Restricted Shares until and unless the Restricted Shares are forfeited and cancelled as provided above. [insert any restrictions on receipt of dividends]

6. Tax Withholding . (a) It shall be a condition of the Grant of the Restrictive Shares provided herein that the Non-Employee Director, and the Non-Employee Director agrees, that the Non-Employee Director shall pay to the Company if the Company believes in good faith that it may have responsibility for such tax and upon the Company’s demand, such amount as may be requested by the Company for the purpose of satisfying the Company’s liability to withhold federal, state, or local income, employment or other taxes incurred by reason of the Grant provided herein or the Vesting thereof. The amount that will be due from the Non-Employee Director, if any, will be determined at the time the risk of forfeiture is removed and Vesting occurs, or if a Section 83(b) election (defined below) is made, as of the date of this Grant.

(b) In the event that a Section 83(b) election is not made, the Non-Employee Director may elect to have the Company withhold that number of Restricted Shares otherwise deliverable to the Non-Employee Director upon the Vesting of the Restricted Shares or to deliver to the Company a number of Shares, in each case, having a Fair Market Value on the date of Vesting equal to the minimum amount required to be withheld as a result of such exercise. The election must be made in writing and must be delivered to the Company prior to the date of Vesting. If the number of shares so determined shall include a fractional share, the Non-Employee Director shall deliver cash in lieu of such fractional share. All elections shall be made in a form approved by the committee and shall be subject to disapproval, in whole or in part by the Committee.

(c) The Non-Employee Director has reviewed with the Non-Employee Director’s own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement. The Non-Employee Director is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Non-Employee Director understands that the Non-Employee Director (and not the Company) shall be responsible for the Non-Employee Director’s own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Non-Employee Director understands that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the fair market value of the Restricted Shares as of the date any restrictions on the Shares lapse. In this context, “restriction” includes the Vesting conditions set forth in Section 3 hereof. The Non-Employee Director understands that the Non-Employee Director may elect to be taxed at the time the Restricted Shares are granted under this Agreement

 

2


rather than when they become Vested and no longer subject to a substantial risk of forfeiture by filing an election under Section 83(b) of the Code with the I.R.S. within 30 days from the date of Grant.

THE NON-EMPLOYEE DIRECTOR ACKNOWLEDGES THAT IT IS THE NON-EMPLOYEE DIRECTOR’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b) WITHIN 30 DAYS FROM THE DATE OF THIS GRANT, EVEN IF THE NON-EMPLOYEE DIRECTOR REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE NON-EMPLOYEE DIRECTOR’S BEHALF. THE NON-EMPLOYEE DIRECTOR FURTHER ACKNOWLEDGES AND AGRESS THIS IT IS THE NON-EMPLOYEE DIRECTOR’S SOLE RESPONSIBILITY TO NOTIFY THE COMPANY OF THE NON-EMPLOYEE DIRECTOR’S DECISION SO THE COMPANY CAN ACCOUNT FOR THE SHARES APPROPRIATELY.

7. Powers of Company Not Affected . The existence of the Restricted Shares shall not affect in any way the right or power of the Company or its stockholders to make or authorize any combinations, subdivision or reclassification of the Shares or any reorganization, merger, consolidation, business combination, exchange of Shares, or other change in the Company’s capital structure or its business, or any issue of bonds, debentures or stock having rights or preferences equal, superior or affecting the Option Stock or the rights thereof or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Nothing in this Agreement shall confer upon the Non-Employee Director any right to continue as a Director of the Company or any Affiliate, or interfere with or limit in any way the right of the Company or any Affiliate to terminate the Non-Employee Director’s status as a Director in accordance with applicable corporate law at any time.

8. Interpretation by Committee . The Non-Employee Director agrees that any dispute or disagreement which may arise in connection with this Agreement shall be resolved by the Committee, in its sole discretion, and that any interpretation by the Committee of the terms of this Agreement or the Plan and any determination made by the Committee under this Agreement or the Plan may be made in the sole discretion of the Committee and shall be final, binding, and conclusive. Any such determination need not be uniform and may be made differently among Non-Employee Directors awarded Restricted Stock.

9. Miscellaneous. (a)This Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(b) This Agreement may not be amended or modified except by the written consent of the parties hereto.

(c) The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.

(d) Any notice, filing or delivery hereunder or with respect to Restricted Shares shall be given to the Non-Employee Director at either his usual work location or his home

 

3


address as indicated in the records of the Company, and shall be given to the Committee or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32202, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

(e) This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Non-Employee Director, the Beneficiary and the personal representative(s) and heirs of the Non-Employee Director.

[Signature Page Follows]

 

4


IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer, and the Non-Employee Director has hereunto affixed his hand, all on the day and year set forth below.

 

STEIN MART, INC.
By:  

 

Its:  

 

Signed Electronically

 

No. of Restricted Shares:  

 

 

Grant Date:  

 

 

5

Exhibit 10.15

BRIAN R. MORROW

AGREEMENT

WITH

STEIN MART, INC.

This Agreement (this “ Agreement ”) entered into in the City of Jacksonville and State of Florida between Stein Mart, Inc ., a Florida corporation and its divisions, subsidiaries and affiliates (the “ Company ”), and Brian R. Morrow (“ Executive ”), is made as of March 1, 2014 (the “ Effective Date ”).

In consideration of the promises and mutual covenants contained herein, the parties, intending to be legally bound, agree as follows:

 

SECTION 1. TERM OF EMPLOYMENT

(a) Term . The Company agrees to employ Executive, and Executive agrees to be employed by the Company, for a period of two (2) year(s) beginning on the Effective Date (the “ Term ”).

 

SECTION 2. DEFINITIONS

“Board of Directors” means the Board of Directors of Stein Mart, Inc. and any of its divisions, affiliates or subsidiaries.

“Cause” means the occurrence of any one or more of the following:

(a) Executive has been convicted of, or pleads guilty or nolo contendere to, a felony involving dishonesty, theft, misappropriation, embezzlement, fraud crimes against property or person, or moral turpitude which negatively impacts the Company; or

(b) Executive intentionally furnishes materially false, misleading, or omissive information concerning a substantial matter to the Company or persons to whom the Executive reports; or

(c) Executive intentionally fails to fulfill any assigned responsibilities for compliance with the Sarbanes-Oxley Act of 2002 or violates the same; or


(d) Executive intentionally and wrongfully damages material assets of the Company; or

(e) Executive intentionally and wrongfully discloses material Confidential Information of the Employer; or

(f) Executive intentionally and wrongfully engages in any competitive activity which would constitute a material breach of the duty of loyalty; or

(g) Executive intentionally breaches any stated material employment policy or any material provision of the Company’s Ethics Policy which could reasonably be expected to expose the Company to liability, or

(h) Executive intentionally commits a material breach of this Agreement, or

(i) Executive intentionally engages in acts or omissions which constitute failure to follow reasonable and lawful directives of the Company, provided, however, that such acts or omissions are not cured within five (5) days following the Company’s giving notice to Executive that the Company considers such acts or omissions to be “Cause” under this Agreement.

No act, or failure to act, on the part of Executive shall be deemed “intentional” if it was due primarily to an error in judgment or negligence, but shall be deemed “intentional” only if done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in or not opposed to the best interests of the Company. Failure to meet performance standards or objectives shall not constitute Cause for purposes hereof.

“Change in Control” means the occurrence of any of the following: (a) the Board approves the sale of all or substantially all of the assets of the Company in a single transaction or series of related transactions; (b) the Company sells and/or one or more shareholders sells a sufficient amount of its capital stock (whether by tender offer, original issuance, or a single or series of related stock purchase and sale agreements and/or transactions) sufficient to confer on the purchaser or purchasers thereof (whether individually or a group acting in concert) beneficial ownership of at least 35% of the combined voting power of the voting securities of the Company; (c) the Company is party to a merger, consolidation or combination, other than any merger, consolidation or combination that would result in the holders of the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation or combination; or (d) a majority of the board of directors consists of individuals who are not Continuing Directors (for this purpose, a Continuing Director is an individual who (i) was a director of the Company on July 1, 2013 or (ii) whose election or nomination as a

 

2


director of the Company is approved by a vote of at least a majority of the directors then comprising the Continuing Directors). For purposes hereof, the definition of a Change of Control shall be construed and interpreted so as to comply with the definition contained in Code Section 409A.

Code ” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code shall be deemed to refer to any successor provision thereto and the regulations promulgated thereunder.

Commencement Date ” means February 2, 2010, the date the Executive shall report for work and assume Executive’s responsibilities hereunder.

“Compensation Committee” means the Company’s Compensation Committee or, if no such committee exists, the term Compensation Committee shall mean the Company’s Board of Directors.

Continuation Period ” means a period following the Termination Date of the Executive’s employment with the company equal to:

(a) twelve (12) months (i) following a termination by the Company due to a non-renewal of the Term of this Agreement under §5(a) hereof, or (ii) following a termination by the Company without Cause or by the Executive for Good Reason under §5(b) hereof, or

(b) twenty-four (24) months following a termination (i) by the Company without Cause following a Change in Control under §5(f)(i) hereof, or (ii) by the Executive for Good Reason following a Change in Control under §5(b) as the definition of Good Reason is expanded in §5(b)(i) hereof.

The Continuation Period is zero months following (i) a termination by the Company for Cause, (ii) a termination by the Executive without Good Reason, or (iii) a failure of the Executive to accept the Company’s offer of renewal of the Term of this Agreement under §5(a) hereof.

Current Insurance Coverage ” means medical, dental, life and accident and disability insurance with coverage consistent with the lesser of (i) the coverage in effect at Executive’s termination, or (ii) the coverage in effect from time to time as applied to persons in positions similar to the position held by Executive at the time of termination.

Disability” means Executive’s incapacity due to physical or mental illness or cause, which results in the Executive being unable to perform his duties with Company on a full-time basis for a period of six (6) consecutive months. Any dispute as to disability shall be conclusively determined by written opinions rendered by two qualified physicians, one selected by Executive, and one selected by Company; provided that if such opinions are conflicting, then such physicians shall select a mutually agreeable third physician whose opinion shall be conclusive and binding.

 

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“Earned Bonus” means the bonus paid, if any, pursuant to the Company’s incentive compensation plans in effect from time to time. Earned Bonus shall be prorated based on the ratio of the number of days during such year that Executive was employed to 365.

Good Reason ” means the occurrence of any one or more of the following:

 

  (i) a material and continuing failure to pay to Executive compensation and benefits (as described in Section 4 ) that have been earned, if any, by Executive, except failure to pay or provide compensation or benefits that are in dispute between the Company and the Executive unless such failure continues following the resolution of such dispute; or

 

  (ii) a material reduction in Executive’s compensation or benefits (as described in Section 4 ) which is materially more adverse to the Executive than similar reductions applicable to other executives of a similar level of status within the Company as Executive; or

 

  (iii) any failure by the Company to comply with any of the material provisions of this Agreement and which is not remedied by the Company within thirty (30) days after receipt of notice thereof given by Executive; or

 

  (iv) any requirement that Executive perform duties that, in the good faith and reasonable professional judgment of Executive, after consultation with the Board of Directors of the Company, are inconsistent with ethical or lawful business practices; or

 

  (v) Executive’s being required to relocate to a principal place of employment more than one-hundred (100) miles from his current principal place of employment in Jacksonville, Florida during the Term unless the Company shall pay all reasonable costs and expenses related thereto; or

 

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  (vi) If following a Change in Control only, there occurs a material change in Executive’s duties, roles, or responsibilities. For purposes of this subsection, “material change” shall be of such a character that a reasonable person serving in a like or similar executive capacity would feel compelled to resign from employment. Examples of “material change” include, but are not limited to substantial reduction of Executive’s authority to make decisions relating to his or her business responsibilities; Executive being required to assume or perform substantially greater responsibilities (without additional compensation) than previously required to perform; substantial reduction of Executive’s responsibilities for personnel matters relating to his or her business operations; substantial alteration or change in Executive’s work schedule; any restructuring or reassignment of any of the Executive’s responsibilities, in a manner that diminishes them or is materially adverse to the Executive, from that which was in effect at the time of the Change in Control; and other substantial changes in Executive’s terms or conditions of employment not related to Executive’s principal business responsibilities. Good Reason pursuant to this subsection shall not exist unless (a) the Executive’s “material change” has existed for a period of at least six months; (b) Executive has consulted with management senior to Executive and his or her supervisor, in a good faith effort to resolve the issues giving Executive reason to believe a “material change” has occurred; and (c) Executive gives written notice of Executive’s resignation for Good Reason under this paragraph within eight months following the commencement of the “material change”.

Termination Date ” means the date of Executive’s termination of employment, or if the Executive continues to provide services to Stein Mart, Inc. or its 409A affiliates following his termination of employment, such later date as is considered a separation from service from Stein Mart, Inc. and its 409A affiliates within the meaning of Code Section 409A. For purposes of this Agreement, the Executive’s “termination of employment” shall be presumed to occur when Stein Mart, Inc. and the Executive reasonably anticipate that no further services will be performed by the Executive for Stein Mart, Inc. and its 409A affiliates or that the level of bona fide services the Executive will perform as an employee of Stein Mart, Inc. and its 409A affiliates will permanently decrease to no more than 20% of the average level of bona fide services performed by the Executive (whether as an employee or independent contractor) for Stein Mart, Inc. and its 409A affiliates over the immediately preceding 36-month period (or such lesser period of services). Whether the Executive has experienced a termination of employment shall be determined by Stein Mart, Inc. in good faith and consistent with Section 409A of the Code. Notwithstanding the foregoing, if the Executive takes a leave of absence for purposes of military leave, sick leave or other bona fide reason, the Executive will not be deemed to have experienced a termination of employment for the first six (6) months of the leave of absence, or if longer, for so long as the Executive’s right to reemployment is provided either by statute or by contract, including this Agreement; provided that if the leave of absence is due to a medically determinable physical or mental impairment that can be expected to result in

 

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death or last for a continuous period of not less than six (6) months, where such impairment causes the Executive to be unable to perform the duties of his position of employment or any substantially similar position of employment, the leave may be extended by Stein Mart, Inc. for up to 29 months without causing a termination of employment. For purposes hereof, the term “409A affiliate” means each entity that is required to be included in Stein Mart, Inc.’s controlled group of corporations within the meaning of Section 414(b) of the Code, or that is under common control with Stein Mart, Inc. within the meaning of Section 414(c) of the Code; provided, however , that the phrase “at least 50 percent” shall be used in place of the phrase “at least 80 percent” each place it appears therein or in the regulations thereunder.

 

SECTION 3. TITLE, POWERS AND RESPONSIBILITIES

(a) Title . Executive shall be an Executive Vice-President and Chief Merchandising Officer of the Company or such other title as designated by the Chief Executive Officer or the Company’s Board of Directors. Executive shall assume those duties on the Commencement Date.

(b) Powers and Responsibilities .

 

  (i) Executive shall use Executives best efforts to faithfully perform the duties of his employment and shall perform such duties as are usually performed by a person serving in Executive’s position with a business similar in size and scope as the Company and such other additional duties as may be prescribed from time to time by the Company which are reasonable and consistent with the Company’s operations, taking into account officer’s expertise and job responsibilities. Executive agrees to devote Executive’s full business time and attention to the business and affairs of the Company. Executive shall serve on such boards and in such offices of the Company or its subsidiaries as the Company’s Board of Directors reasonably requests without additional compensation.

 

  (ii) Executive, as a condition to his employment under this Agreement, represents and warrants that he can assume and fulfill responsibilities described in Section 3(b)(i) without any risk of violating any non-compete or other restrictive covenant or other agreement to which he is a party. During the Employment Term Executive shall not enter into any agreement that would preclude, hinder or impair his ability to fulfill responsibilities described in Section 3(b)(i) specifically or this Agreement generally.

 

SECTION 4. COMPENSATION AND BENEFITS

(a) Annual Base Salary . Executive’s base salary shall be $567,833.49 per year (“ Annual Base Salary ”), which amount may be periodically reviewed at the discretion of the Compensation Committee. The Annual Base Salary and any payments to the Executive during any Continuation Period shall be payable in

 

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accordance with the Company’s standard payroll practices and policies (unless otherwise expressly provided herein) and shall be subject to such withholdings as required by law or as otherwise permissible under such practices or policies.

(b) Earned Bonus; Incentive Compensation; Executive shall be eligible to receive an Earned Bonus. Executive shall also be eligible to participate in such annual and long term incentive plans as are in effect from time to time as applicable to persons at Executive’s level of authority and position. Nothing in this Section 4(b) guarantees that any Earned Bonus or other incentive compensation will be paid.

(c) Employee Benefit Plans . Executive shall be entitled to receive the benefits described in Schedule A attached hereto, if and for as long as the Company sponsors such plans and such plans remain in effect for other executives with the same level of status as Executive.

(d) Stock Options . The Board of Directors, in its discretion, may grant rights to Executive under the Stein Mart, Inc. Omnibus Plan (the “ Option Plan ”) on terms set by the Board of Directors or the Compensation Committee.

(e) Deferred Compensation . Executive will participate in the Stein Mart Executive Deferred Compensation Plan (the “ Deferred Compensation Plan ”). The Company reserves the right to alter, modify, revise or eliminate the Deferred Compensation Plan provided that any such change to the terms will apply to Executive and similarly situated participants.

(f) Vacation, Holidays and Salary Continuation. Executive shall receive a total of 27 days of paid vacation, or holidays on a pro rata basis during any 365 day period of the Term. The amount may be adjusted in accordance with the Company’s standard policy or as directed by the Company’s Board of Directors. Any vacation or holiday leave time not used during any 365 day period of the Term will not carry forward to the next 365 period and will be forfeited.

(g) Expense Reimbursements . Executive shall have the right to expense reimbursements in accordance with the Company’s standard policy on expense reimbursements as in effect from time to time.

(h) Indemnification . With respect to Executive’s acts or failures to act during his employment in his capacity as an officer, employee or agent of the Company, Executive shall be entitled to indemnification from the Company, and to liability insurance coverage (if any), on the same basis as other officers of the Company. Executive shall be indemnified by Company, and Company shall pay Executive’s related expenses when and as incurred, all to the full extent permitted by law. Subject to applicable law, the Company reserves the right to discontinue indemnification in the event the Company determines that the Executive has breached this Agreement or the Executive has advances, or intends to advance, a

 

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business or legal position contrary to the Company’s interests. Notwithstanding the foregoing, Executive shall not be entitled to any indemnification if a judgment or other final adjudication establishes that any act or omission of Executive was material to the cause of action so adjudicated and that such act or omission constituted: (i) a criminal violation, unless Executive had reasonable cause to believe that Executive’s conduct was lawful or had no reasonable cause to believe that such conduct was unlawful, (ii) a transaction from which Executive derived an improper personal benefit, or (iii) willful misconduct or a conscious disregard for the best interests of the Company.

(i) Automobile Allowance. The Company will pay Executive $1,100 per month (paid quarterly) which shall be used for the lease, purchase, maintenance and/or operation of a vehicle that Executive is to use for business travel or may use for personal travel. Executive shall be solely responsible for any taxes associated with the automobile allowance afforded to him.

(j) Other Perquisites . The Company will provide Executive with such other perquisites as may be made generally available to others in a similar level of executive position within the Company.

 

SECTION 5. TERMINATION OF EMPLOYMENT

(a) General; Non- Renewal . The Board of Directors shall have the right to terminate Executive’s employment and this Agreement at any time with or without Cause, and Executive shall have the right to terminate his employment and this Agreement at any time with or without Good Reason; provided that obligations under this Section 5, Section 6 and Section 7 shall survive termination of the Agreement. The Board of Directors may delegate its powers to terminate the Executive to the persons to whom the Executive reports. In the event the Company elects not to renew the Executive’s employment following the end of the Term with compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement, but the Executive is willing and able to enter into a renewal of this Agreement with compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement, then upon termination of the Executive’s employment, (i) the Company shall pay the Executive his normal base twelve (12) months salary over a six month period beginning six (6) months following the Termination Date (subject in each case to such withholdings as required by law), and (ii) the Company shall continue until the earlier to occur of the end of the Continuation Period or until such time as the Executive commences a new job, to maintain in effect for such Executive at the Company’s cost the Executive’s Current Insurance Coverage; provided that if the taxable value of the continued life and accident and disability coverage to Executive during the first six (6) months following the Termination Date exceeds the annual dollar limit in effect under Code Section 402(g)(1)(B) for the year of such termination, then the Executive shall pay the premiums in excess of such limit for such coverage during such six (6)-month period

 

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and after the end of such six (6)-month period, the Company shall reimburse the Executive for the amount of the premiums paid by the Executive, without interest thereon. If the Company intends to offer to renew the Executive’s employment following the end of the Term it will present its offer no later than thirty (30) days before the end of the Term. If the offer contains compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement and the Executive does not accept that offer within thirty (30)  days following the offer having been made, then upon the expiration of the then current Term of this Agreement, the Executive shall be deemed to have terminated his or her employment without Good Reason.

(b) Termination by Board of Directors without Cause or by Executive for Good Reason . If (i) the Board of Directors terminates Executive’s employment without Cause, or (ii) Executive resigns for Good Reason, then in either of those circumstances, the Company’s only obligation to Executive under this Agreement (except as provided in §5(f) hereof) shall be to pay Executive his earned but unpaid base salary, if any, up to the date of his termination of employment, plus 100% of his current total Annual Base Salary as specified in Section 4(a) (subject to such withholdings as required by law) payable in periodic payments (consistent with the payroll periods then in effect) for twelve (12) consecutive months beginning six (6) months following the Termination Date. During the Continuation Period the Executive shall also continue to receive, at the Company’s cost, the Current Insurance Coverage; provided that if the taxable value of the continued life and accident and disability coverage to Executive during the first six (6) months following the Termination Date exceeds the annual dollar limit in effect under Code Section 402(g)(1)(B) for the year of such termination, then the Executive shall pay the premiums in excess of such limit for such coverage during such six (6)-month period and after the end of such six (6)-month period, the Company shall reimburse the Executive for the amount of the premiums paid by the Executive, without interest thereon.

(c) Termination by the Board of Directors for Cause or by Executive without Good Reason . If the Board of Directors of the Company terminates Executive’s employment for Cause or Executive resigns without Good Reason, the Company’s only obligation to Executive under this Agreement shall be to pay Executive his earned but unpaid base salary, if any, up to the date of his termination of employment, and the Company shall have no obligation to pay any Earned Bonus with respect to the year during which the Termination Date occurs. The Company shall only be obligated to make such payments and provide such benefits under any employee benefit plan, program or policy in which Executive was a participant as are explicitly required to be paid to Executive by the terms of any such benefit plan, program or policy following the Termination Date.

 

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(d) Termination for Disability . Subject to the definitions and requirements of Section 2 (“Disability”), after six (6) consecutive months of such disability leave of absence, Executive’s service may be terminated by Company. In the event Executive is terminated from employment due to Disability, the Company shall:

(i) pay Executive his Annual Base Salary through the end of the month in which his employment terminates as soon as practicable after his employment terminates; provided that if such payment exceeds the applicable dollar amount in effect under Code Section 402(g)(1)(B) for the year in which such termination occurs, then the payment in excess of such applicable dollar amount shall be paid following six (6) months after the Executive’s Termination Date;

(ii) pay Executive his Earned Bonus, pro rata and if any, for the fiscal year in which such termination of employment occurs, which amount shall be paid at the same time the Earned Bonus would have been paid had Executive remained in employment;

(iii) pay Executive an additional nine (9) months of compensation at the then-Annual Base Salary, which aggregate amount shall be payable in equal semi-monthly installments beginning not earlier than six (6) months following the Termination Date and continuing for nine (9) months thereafter;

(iv) pay or cause the payment of benefits to which Executive is entitled under the terms of any disability plan of the Company covering the Executive at the time of such Disability:

(v) pay premiums for COBRA coverage as provided in Section 5(g);

(vi) make such payments and provide such benefits as otherwise called for under the terms of each other employee benefit plan, program and policy in which Executive was a participant; provided no payments made under Section 5(d)(ii) or Section 5(d)(iii) shall be taken into account in computing any payments or benefits described in this Section 5(d)(iv); and

 

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(vii) in the event the Executive has any options or restricted shares (but excluding “performance shares” which shall be governed by the terms set forth in the grant as to such shares) which are not vested on the date of termination for Disability, then pay to the Executive (i) as to any unvested options, the net value of the excess, if any, of the closing price of the Company’s shares on the NASDAQ for the day on which the termination due to Disability occurs and the exercise price of such unvested options multiplied by the number of shares subject to options which failed to vest; and (ii) as to any unvested restricted shares, the value of the closing price of the Company’s shares on the NASDAQ for the day on which the termination due to Disability occurs multiplied by the number of restricted shares, if any, which failed to vest due to such termination of employment for Disability.

Notwithstanding the Executive’s Disability, during the period of Disability leave, Executive shall be paid in full (net of insurance) as if he or she were actively performing services. Executive agrees to simultaneously utilize available leave under the Family and Medical Leave Act of 1993 during such disability leave of absence. During the period of such Disability leave of absence, the Board of Directors may designate someone to perform Executive’s duties. Executive shall have the right to return to full-time service so long as he is able to resume and faithfully perform his full-time duties.

(e) Death . If Executive’s employment terminates as a result of his death, the Company shall:

(i) pay to Executive’s estate his Annual Base Salary through the end of the month in which his employment terminates as soon as practicable after his death;

(ii) pay to Executive’s estate his Earned Bonus, when actually determined, for the year in which Executive’s death occurs;

(iii) make such payments and provide such benefits as otherwise called for under the terms of each other employee benefit plan, program and policy in which Executive was a participant; provided no payments made under Section 5(e)(ii) shall be taken into account in computing any payments or benefits described in this Section 5(e)(iii); and

 

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(iv) in the event the Executive has any options or restricted shares (but excluding “performance shares” which shall be governed by the terms set forth in the grant as to such shares) which are not vested on the date of termination for death, then pay to the Executive’s estate (i) as to any unvested options, the net value of the excess, if any, of the closing price of the Company’s shares on the NASDAQ for the day on which the death occurred and the exercise price of such unvested options multiplied by the number of shares subject to options which failed to vest; and (ii) as to any unvested restricted shares, the value of the closing price of the Company’s shares on the NASDAQ for the day on which the death occurred multiplied by the number of restricted shares, if any, which failed to vest due to such termination of employment for death.

Any amounts payable to Executive under this Agreement which are unpaid at the date of Executive’s death or payable hereunder or otherwise by reason of his death, shall be paid in accordance with the terms of this Agreement to Executive’s estate; provided that if there is a specific beneficiary designation in place for any specific amount payable, then payment of such amount shall be made to such beneficiary.

(f) Change in Control . If a Change in Control occurs, then for a period beginning on the occurrence of the Change in Control and ending two years following that occurrence (the “ Post Change in Control Period ”):

(i) In addition to the other events constituting Good Reason under this Agreement, the following shall also constitute Good Reason: if the Executive is willing and able to continue employment with the Company but the Company exercises its right to either not renew this Agreement, or only offers to renew this Agreement only under conditions or terms which would constitute a “ material change ” (as that term is defined in the definition of Good Reason), provided, however, that notice of exercise of the Executive’s termination for Good Reason must be received by the Company during the Post Change in Control Period and not later than thirty (30) days after the Company exercises its right not to renew this Agreement or to renew the Agreement only on terms which would constitute a “ material change ”; and

(ii) In the event of termination of the Executive’s employment with the Company pursuant to §5(b) hereof either by the Company without Cause, or by the Executive for Good Reason (as such term is expanded to include the circumstances described in §5(f)(i) above), with notice of such termination given within the Post Change in Control Period, then the Executive shall receive the following (the “ CIC Severance Payments ”) in a lump sum payable in funds immediately available in Jacksonville, Florida not earlier than six (6) months following the Termination Date and not later than seven (7) months following Termination Date: an amount equal to 200% of the sum of

 

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(A) the total of severance payments (other than continued insurance coverage) provided under §5(b) of this agreement (and in lieu thereof), and (B) the Earned Bonus in the year of the Termination Date. For purposes of this subsection (f) Earned Bonus shall not be prorated and shall be an amount equal to “Target” bonus as defined in the Company’s incentive compensation plan in effect from time to time.

(g) Benefit Continuation . Provided Executive is eligible for COBRA coverage, and has not been terminated from employment for Cause or resigned without Good Reason, then the Company shall pay the Executive’s COBRA premiums commencing on the date of the Executive’s termination of employment and continuing for the applicable Continuation Period in order to continue Executive’s health insurance coverage and maintain such coverage in effect; provided that following the end of the COBRA continuation period, if Executive’s health insurance coverage is provided under a health plan that is subject to Code Section 105(h), benefits payable under such health plan shall comply with the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv) and, if necessary, the Company shall amend such health plan to comply therewith.

(h) Relinquishment of Corporate Positions . Executive shall automatically cease to be an officer and/or director of the Company and its affiliates as of his date of termination of employment.

(i) Limitation. Anything in this Agreement to the contrary notwithstanding, Executive’s entitlement to or payments under any other plan or agreement shall be limited to the extent necessary so that no payment to be made to Executive on account of termination of his employment with the Company will be subject to the excise tax imposed by Code Section 4999, but only if, by reason of such limitation, Executive’s net after tax benefit shall exceed the net after tax benefit if such reduction were not made. “Net after tax benefit” shall mean (i) the sum of all payments and benefits that Executive is then entitled to receive under any section of this Agreement or other plan or agreement that would constitute a “parachute payment” within the meaning of Section 280G of the Code, less (ii) the amount of federal income tax payable with respect to the payments and benefits described in clause (i) above calculated at the maximum marginal income tax rate for each year in which such payments and benefits shall be paid to Executive (based upon the rate in effect for such year as set forth in the Code at the time of the first payment of the foregoing), less (iii) the amount of excise tax imposed with respect to the payments and benefits described in clause (i) above by Section 4999 of the Code. Any limitation under this Section 5(i) of Executive’s entitlement to payments shall be made in the manner and in the order directed by Executive.

 

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SECTION 6. COVENANTS BY EXECUTIVE

(a) Company Property . Upon the termination of Executive’s employment for any reason, Executive shall promptly return all Company Property which had been entrusted or made available to Executive by the Company. “ Property ” means all records, files, memoranda, communication, reports, price lists, plans for current or prospective business operations, customer lists, drawings, plans, sketches, keys, codes, computer hardware and software and other property of any kind or description prepared, used or possessed by Executive during Executive’s employment by the Company (and any duplicates of any such Property) together with any and all information, ideas, concepts, discoveries, processes, intellectual property, inventions and the like conceived, made, developed or acquired at any time by Executive individually or with others during Executive’s employment which relate to the Company or its products or services or operations.

(b) Trade Secrets . Executive agrees that Executive shall hold in a fiduciary capacity for the benefit of the Company and shall not directly or indirectly use or disclose any Trade Secret that Executive may have acquired during the term of Executive’s employment by the Company for so long as such information remains a Trade Secret. “ Trade Secret ” means information, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing or a process that (1) derives economic value, actual or potential, from not being generally known to, and not being generally readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (2) is the subject of reasonable efforts by the Company to maintain its secrecy. This Section 6(b) is intended to provide rights to the Company which are in addition to, not in lieu of, those rights the Company has under the common law or applicable statutes for the protection of trade secrets.

(c) Confidential Information . During the Employment Term and continuing thereafter indefinitely, Executive shall hold in a fiduciary capacity for the benefit of the Company, and shall not directly or indirectly use or disclose, any Confidential Information that Executive may have acquired (whether or not developed or compiled by Executive and whether or not Executive is authorized to have access to such information) during the term of, and in the course of, or as a result of Executive’s employment by the Company without the prior written consent of the Board of Directors unless and except to the extent that such disclosure is (i) made in the ordinary course of Executive’s performance of his duties under this Agreement or (ii) required by any subpoena or other legal process (in which event Executive will give the Company prompt notice of such subpoena or other legal process in order to permit the Company to seek appropriate protective orders). “ Confidential Information ” means any secret, confidential or proprietary information possessed by the Company or any of its subsidiaries or affiliates, including, without limitation, trade secrets, customer or supplier lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies, price lists, market studies,

 

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business plans, operational methods, marketing plans or strategies, advertising campaigns, information regarding customers or suppliers, computer software programs (including object code and source code), data and documentation data, base technologies, systems, structures and architectures, inventions and ideas, past current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans and new personnel acquisition plans and the terms and conditions of this Agreement that has not become generally available to the public.

(d) Remedies . Executive recognizes that his duties will entail the receipt of Trade Secrets and Confidential Information as defined in this Section 6. Those Trade Secrets and Confidential Information have been developed by the Company at substantial cost and constitute valuable and unique property of the Company. Accordingly, the Executive acknowledges that protection of Trade Secrets and Confidential Information is a legitimate business interest. If the Executive shall breach the covenants contained in this Section 6, the Company shall have no further obligation to make any payment to the Executive pursuant to this Agreement and may recover from the Executive all such damages as it may be entitled to at law or in equity. In addition, the Executive acknowledges that any such breach is likely to result in irreparable harm to the Company. The Company shall be entitled to specific performance of the covenants in this Section 6, including entry of a temporary restraining order in state or federal court, preliminary and permanent injunctive relief against activities in violation of this Section 6, or both, or other appropriate judicial remedy, writ or order, in addition to any damages and legal expenses which the Company may be legally entitled to recover. Executive acknowledges and agrees that the covenants in this Section 6 shall be construed as agreements independent of any other provision of this Agreement or any other agreement between the Company and Executive, and that the existence of any claim or cause of action by Executive against the Company, whether predicated upon this Agreement or any other agreement, shall not constitute a defense to the enforcement by the Company of such covenants.

(e) Non-Solicitation . During the Employment Term and for a period of two years hereafter (such period is referred to as the “No Recruit Period”), the Executive will not solicit, either directly or indirectly, any person that he knows or should reasonably know to be an employee of the Company, whether any such employees are now or hereafter through the No Recruit Period so employed or engaged to terminate their employment with the Company. The foregoing is not intended to limit any legal rights or remedies that any employee of the Company may have under common law with regard to any interference by Executive at any time with the contractual relationship the Company may have with any of its employees.

(f) Reasonable and Continuing Obligations . Executive agrees that Executive’s obligations under this Section 6 are obligations which will continue beyond the date Executive’s employment terminates and that such obligations are

 

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reasonable, fair and equitable in scope. The terms and duration are necessary to protect the Company’s legitimate business interests and are a material inducement to the Company to enter into this Agreement. Executive further acknowledges that the consideration for this Section 6 is his employment or continued employment. Executive will not be paid any additional compensation during this Restricted Period for application or enforcement of the restrictive covenants contained in this Section 6.

(g) Work Product. The term “Work Product” includes any and all information, programs, concepts, processes, discoveries, improvements, formulas, know-how and inventions, in any form whatsoever, relating to the business or activities of the Company, or resulting from or suggested by any work developed by the Executive in connection with the Company, or by the Executive at the Company’s request. Executive acknowledges that all Work Product developed during the Term is property of the Company and accordingly, Executive does hereby irrevocably assign all Work Product developed by the Executive to the Company and agrees: (a) to assign to the Company, free from any obligation of the Company to the Executive, all of the Executive’s right, title and interest in and to Work Product conceived, discovered, researched, or developed by the Executive either solely or jointly with others during the term of this Agreement and for three (3) months after the termination or nonrenewal of this Agreement; and (b) to disclose to the Company promptly and in writing such Work Product upon the Executive’s acquisition thereof.

 

SECTION 7. MISCELLANEOUS

(a) Notices . Notices and all other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail. Notices to the Company shall be sent to:

STEIN MART, INC

Attention: General Counsel

1200 Riverplace Boulevard, 10th Floor

Jacksonville, FL 32207

Facsimile: (904) 346-1297

 

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Notices and communications to Executive shall be sent to the address Executive most recently provided to the Company.

(b) No Waiver . No failure by either the Company or Executive at any time to give notice of any breach by the other of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of any provisions or conditions of this Agreement.

(c) Governing Law . This Agreement shall be governed by Florida law without reference to the choice of law principles thereof.

(d) Assignment . This Agreement shall be binding upon and inure to the benefit of the Company and any successor in interest to the Company or any segment of such business. The Company may assign this Agreement to any affiliate or successor that acquires all or substantially all of the assets and business of the Company or a majority of the voting interests of the Company. The Company will require any successor (whether direct or indirect, by operation of law, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Company) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean Company as defined above and, unless the context otherwise requires, any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Executive’s rights and obligations under this Agreement are personal and shall not be assigned or transferred.

(e) Other Agreements . This Agreement replaces and merges any and all previous agreements and understandings regarding all the terms and conditions of Executive’s employment relationship with the Company, and this Agreement constitutes the entire agreement between the Company and Executive with respect to such terms and conditions.

(f) Amendment . No amendment to this Agreement shall be effective unless it is in writing and signed by the Company and by Executive.

(g) Invalidity and Severability . If any part of this Agreement is held by a court of competent jurisdiction to be invalid or otherwise unenforceable, the remaining part shall be unaffected and shall continue in full force and effect, and the invalid or otherwise unenforceable part shall be deemed not to be part of this Agreement.

 

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(h) Litigation . In the event that either party to this Agreement institutes litigation against the other party to enforce his or its respective rights under this Agreement, each party shall pay its own costs and expenses incurred in connection with such litigation. As a material part of the consideration for this Agreement, BOTH PARTIES HERETO WAIVE ANY RIGHT TO A TRIAL BY A JURY in the event of any litigation arising from this Agreement. All legal actions arising out of or connected with this Agreement must be instituted solely in the Circuit Court of Duval County, Florida, or in the Federal District Court for the Middle District of Florida, Jacksonville Division, and all parties hereto do hereby agree to submit to the exclusive personal jurisdiction of such courts. Each of the parties hereby expressly and irrevocably submits to the jurisdiction of such courts for the purposes of any such action and expressly and irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter may have to the laying of venue of any such action brought in any such court and any claim that any such action has been brought in an inconvenient forum.

(i) Counterparts . This Agreement may be executed in counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF , the Company and Executive have executed this Agreement effective as of the Effective Date.

 

STEIN MART, INC.     EXECUTIVE
By:  

/s/ D. Hunt Hawkins

   

/s/ Brian R. Morrow

Name:   D. Hunt Hawkins     Brian R. Morrow
Title:   EVP, COO    
Date:   2/26/2014     Date: 2/26/2014

 

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SCHEDULE A

BENEFITS

 

1. Retirement Plan/Life Insurance/AD&D

The Executive shall be entitled to participate in all retirement plans and will be entitled to life insurance and AD&D benefits which other senior executives of the Company or affiliates of the Company are eligible.

 

2. Long-Term Disability

The Executive shall be entitled to participate in all Long-Term and Life Time Disability plans which other senior executives of the Company or affiliates of the Company are eligible.

 

3. Medical/Dental Benefits

The Executive shall be entitled to medical/dental benefits which other senior executives of the Company or affiliates of the Company are eligible.

 

4. Unavoidable Change in Travel Arrangements

In the event Executive has arranged for travel between Jacksonville and Los Angeles, the Company will reimburse Executive for any change fees or fare increases resulting from any change in Executive’s itinerary made at the request of the Company.

 

A-1

Exhibit 10.17

Gregory W. Kleffner

AGREEMENT

WITH

STEIN MART, INC.

This Agreement (this “ Agreement ”) entered into in the City of Jacksonville and State of Florida between Stein Mart, Inc ., a Florida corporation and its divisions, subsidiaries and affiliates (the “ Company ”), and Gregory W. Kleffner (“ Executive ”), is made as of July 31, 2013 (the “ Effective Date ”).

In consideration of the promises and mutual covenants contained herein, the parties, intending to be legally bound, agree as follows:

 

SECTION 1. TERM OF EMPLOYMENT

(a) Term . The Company agrees to employ Executive, and Executive agrees to be employed by the Company, for a period of two (2) year(s) beginning on the Effective Date (the “ Term ”).

 

SECTION 2. DEFINITIONS

“Board of Directors” means the Board of Directors of Stein Mart, Inc. and any of its divisions, affiliates or subsidiaries.

“Cause” means the occurrence of any one or more of the following:

(a) Executive has been convicted of, or pleads guilty or nolo contendere to, a felony involving dishonesty, theft, misappropriation, embezzlement, fraud crimes against property or person, or any act of moral turpitude which negatively impacts the Company; or

(b) Executive intentionally furnishes materially false, misleading, or omissive information concerning a substantial matter to the Company or persons to whom the Executive reports; or

(c) Executive intentionally fails to fulfill any assigned responsibilities for compliance with the Sarbanes-Oxley Act of 2002 or violates the same; or


(d) Executive intentionally and wrongfully damages material assets of the Company; or

(e) Executive Wrongly discloses Confidential Information of the Employer; or

(f) Executive engages in any activity which would constitute a breach of the duty of loyalty; or

(g) Executive breaches any stated employment policy or provision of the Company’s Ethics Policy which could reasonably be expected to expose the Company to liability or negatively impact the Company or its business reputation, or

(h) Executive commits a material breach of this Agreement, or

(i) Executive engages in acts or omissions which constitute a failure to follow reasonable and lawful directives of the Company, provided, however, that such acts or omissions are not cured by Executive within five (5) days following the Company’s giving notice to Executive that the Company considers such acts or omissions to be “Cause” under this Agreement.

Failure to meet performance standards or objectives that does not involve any acts or omissions indentified in (a) through (i) above shall not constitute Cause for purposes hereof.

Change in Control means the occurrence of any of the following: (a) the Board approves the sale of all or substantially all of the assets of the Company in a single transaction or series of related transactions; (b) the Company sells and/or one or more shareholders sells a sufficient amount of its capital stock (whether by tender offer, original issuance, or a single or series of related stock purchase and sale agreements and/or transactions) sufficient to confer on the purchaser or purchasers thereof (whether individually or a group acting in concert) beneficial ownership of at least 35% of the combined voting power of the voting securities of the Company; (c) the Company is party to a merger, consolidation or combination, other than any merger, consolidation or combination that would result in the holders of the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation or combination; or (d) a majority of the board of directors consists of individuals who are not Continuing Directors (for this purpose, a Continuing Director is an individual who (i) was a director of the Company on July 1, 20013 or (ii) whose election or nomination as a director of the Company is approved by a vote of at least a majority of the directors

 

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then comprising the Continuing Directors). For purposes hereof, the definition of a Change of Control shall be construed and interpreted so as to comply with the definition contained in Code Section 409A.

Code ” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code shall be deemed to refer to any successor provision thereto and the regulations promulgated thereunder.

Commencement Date ” means February 2, 2010, the date the Executive shall report for work and assume Executive’s responsibilities hereunder.

“Compensation Committee” means the Company’s Compensation Committee or, if no such committee exists, the term Compensation Committee shall mean the Company’s Board of Directors.

Continuation Period ” means a period following the Termination Date of the Executive’s employment with the company equal to:

(a) twelve (12) months (i) following a termination by the Company due to a non-renewal of the Term of this Agreement under §5(a) hereof, or (ii) following a termination by the Company without Cause or by the Executive for Good Reason under §5(b) hereof, or

(b) twenty-four (24) months following a termination (i) by the Company without Cause following a Change in Control under §5(f)(i) hereof, or (ii) by the Executive for Good Reason following a Change in Control under §5(b) as the definition of Good Reason is expanded in §5(b)(i) hereof.

The Continuation Period is zero months following (i) a termination by the Company for Cause, (ii) a termination by the Executive without Good Reason, or (iii) a failure of the Executive to accept the Company’s offer of renewal of the Term of this Agreement under §5(a) hereof.

Current Insurance Coverage ” means medical, dental, life and accident and disability insurance with coverage consistent with the lesser of (i) the coverage in effect at Executive’s termination, or (ii) the coverage in effect from time to time as applied to persons in positions similar to the position held by Executive at the time of termination.

Disability” means Executive’s incapacity due to physical or mental illness or cause, which results in the Executive being unable to perform his duties with Company on a full-time basis for a period of six (6) consecutive months. Any dispute as to disability shall be conclusively determined by written opinions rendered by two qualified physicians, one selected by Executive, and one selected by Company; provided that if such opinions are conflicting, then such physicians shall select a mutually agreeable third physician whose opinion shall be conclusive and binding.

 

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“Earned Bonus” means the bonus paid, if any, pursuant to the Company’s incentive compensation plans in effect from time to time. Earned Bonus shall be prorated based on the ratio of the number of days during such year that Executive was employed to 365.

Good Reason ” means the occurrence of any one or more of the following:

 

  (i) a material and continuing failure to pay to Executive compensation and benefits (as described in Section 4 ) that have been earned, if any, by Executive, except failure to pay or provide compensation or benefits that are in dispute between the Company and the Executive unless such failure continues following the resolution of such dispute; or

 

  (ii) a substantial reduction in Executive’s compensation or benefits (as described in Section 4 ) which is materially more adverse to the Executive than similar reductions applicable to other executives of a similar level of status within the Company as Executive; or

 

  (iii) any failure by the Company to comply with any of the material provisions of this Agreement and which is not remedied by the Company within thirty (30) days after receipt of notice thereof given by Executive; or

 

  (iv) any requirement that Executive perform duties that, in the good faith and reasonable professional judgment of Executive, after consultation with the Board of Directors of the Company, are inconsistent with ethical or lawful business practices; or

 

  (v) Executive’s being required to relocate to a principal place of employment more than one-hundred (100) miles from his current principal place of employment in Jacksonville, Florida during the Term unless the Company shall pay all reasonable costs and expenses related thereto; or

 

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  (vi) If following a Change in Control only, there occurs a material change in Executive’s duties, roles, or responsibilities. For purposes of this subsection, “material change” shall be of such a character that a reasonable person serving in a like or similar executive capacity would feel compelled to resign from employment. Examples of “material change” include, but are not limited to substantial reduction of Executive’s authority to make decisions relating to his or her business responsibilities; Executive being required to assume or perform substantially greater responsibilities (without additional compensation) than previously required to perform; substantial reduction of Executive’s responsibilities for personnel matters relating to his or her business operations;; any restructuring or reassignment of any of the Executive’s responsibilities, in a manner that diminishes them or is materially adverse to the Executive, from that which was in effect at the time of the Change in Control; and other substantial changes in Executive’s terms or conditions of employment not related to Executive’s principal business responsibilities. Good Reason pursuant to this subsection shall not exist unless (a) the Executive’s “material change” has existed for a period of at least six months; (b) Executive has consulted with management senior to Executive and his or her supervisor, in a good faith effort to resolve the issues giving Executive reason to believe a “material change” has occurred; and (c) Executive gives written notice of Executive’s resignation for Good Reason under this paragraph within eight months following the commencement of the “material change”.

Termination Date ” means the date of Executive’s termination of employment, or if the Executive continues to provide services to Stein Mart, Inc. or its 409A affiliates following his termination of employment, such later date as is considered a separation from service from Stein Mart, Inc. and its 409A affiliates within the meaning of Code Section 409A. For purposes of this Agreement, the Executive’s “termination of employment” shall be presumed to occur when Stein Mart, Inc. and the Executive reasonably anticipate that no further services will be performed by the Executive for Stein Mart, Inc. and its 409A affiliates or that the level of bona fide services the Executive will perform as an employee of Stein Mart, Inc. and its 409A affiliates will permanently decrease to no more than 20% of the average level of bona fide services performed by the Executive (whether as an employee or independent contractor) for Stein Mart, Inc. and its 409A affiliates over the immediately preceding 36-month period (or such lesser period of services). Whether the Executive has experienced a termination of employment shall be determined by Stein Mart, Inc. in good faith and consistent with Section 409A of the Code. Notwithstanding the foregoing, if the Executive takes a leave of absence for purposes of military leave, sick leave or other bona fide reason, the Executive will not be deemed to have experienced a termination of employment for the first six (6) months of the leave of absence, or if longer, for so long as the Executive’s right to reemployment is provided either by statute or by contract, including this Agreement; provided that if the leave of absence is due to a

 

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medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than six (6) months, where such impairment causes the Executive to be unable to perform the duties of his position of employment or any substantially similar position of employment, the leave may be extended by Stein Mart, Inc. for up to 29 months without causing a termination of employment. For purposes hereof, the term “409A affiliate” means each entity that is required to be included in Stein Mart, Inc.’s controlled group of corporations within the meaning of Section 414(b) of the Code, or that is under common control with Stein Mart, Inc. within the meaning of Section 414(c) of the Code; provided, however , that the phrase “at least 50 percent” shall be used in place of the phrase “at least 80 percent” each place it appears therein or in the regulations thereunder.

 

SECTION 3. TITLE, POWERS AND RESPONSIBILITIES

(a) Title . Executive shall be an Executive Vice-President Chief Financial Officer of the Company or such other title as designated by the Chief Executive Officer or the Company’s Board of Directors. Executive shall assume those duties on the Commencement Date.

(b) Powers and Responsibilities .

 

  (i) Executive shall use Executives best efforts to faithfully perform the duties of his employment and shall perform such duties as are usually performed by a person serving in Executive’s position with a business similar in size and scope as the Company and such other additional duties as may be prescribed from time to time by the Company which are reasonable and consistent with the Company’s operations, taking into account officer’s expertise and job responsibilities. Executive agrees to devote Executive’s full business time and attention to the business and affairs of the Company. Executive shall serve on such boards and in such offices of the Company or its subsidiaries as the Company’s Board of Directors reasonably requests without additional compensation.

 

  (ii) Executive, as a condition to his employment under this Agreement, represents and warrants that he can assume and fulfill responsibilities described in Section 3(b)(i) without any risk of violating any non-compete or other restrictive covenant or other agreement to which he is a party. During the Employment Term Executive shall not enter into any agreement that would preclude, hinder or impair his ability to fulfill responsibilities described in Section 3(b)(i) specifically or this Agreement generally.

 

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SECTION 4. COMPENSATION AND BENEFITS

(a) Annual Base Salary . Executive’s base salary shall be $377,088.39 per year (“ Annual Base Salary ”) beginning on the Commencement Date, which amount may be periodically reviewed at the discretion of the Compensation Committee. The Annual Base Salary and any payments to the Executive during any Continuation Period shall be payable in accordance with the Company’s standard payroll practices and policies (unless otherwise expressly provided herein) and shall be subject to such withholdings as required by law or as otherwise permissible under such practices or policies.

(b) Earned Bonus; Incentive Compensation; Executive shall be eligible to receive an Earned Bonus. Executive shall also be eligible to participate in such annual and long term incentive plans as are in effect from time to time as applicable to persons at Executive’s level of authority and position. Nothing in this Section 4(b) guarantees that any Earned Bonus or other incentive compensation will be paid.

(c) Employee Benefit Plans . Executive shall be entitled to receive the benefits described in Schedule A attached hereto, if and for as long as the Company sponsors such plans and such plans remain in effect for other executives with the same level of status as Executive.

(d) Stock Options . The Board of Directors, in its discretion, may grant rights to Executive under the Stein Mart, Inc. Omnibus Plan (the “ Option Plan ”) on terms set by the Board of Directors or the Compensation Committee.

(e) Deferred Compensation . Executive will participate in the Stein Mart Executive Deferred Compensation Plan (the “ Deferred Compensation Plan ”). The Company reserves the right to alter, modify, revise or eliminate the Deferred Compensation Plan provided that any such change to the terms will apply to Executive and similarly situated participants.

(f) Vacation, Holidays and Salary Continuation. Executive shall receive a total of 27 days of paid vacation, or holidays on a pro rata basis during any 365 day period of the Term. The amount may be adjusted in accordance with the Company’s standard policy or as directed by the Company’s Board of Directors. Any vacation or holiday leave time not used during any 365 day period of the Term will not carry forward to the next 365 period and will be forfeited.

(g) Expense Reimbursements . Executive shall have the right to expense reimbursements in accordance with the Company’s standard policy on expense reimbursements as in effect from time to time.

 

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(h) Indemnification . With respect to Executive’s acts or failures to act during his employment in his capacity as an officer, employee or agent of the Company, Executive shall be entitled to indemnification from the Company, and to liability insurance coverage (if any), on the same basis as other officers of the Company. Executive shall be indemnified by Company, and Company shall pay Executive’s related expenses when and as incurred, all to the full extent permitted by law. Subject to applicable law, the Company reserves the right to discontinue indemnification in the event the Company determines that the Executive has breached this Agreement or the Executive has advances, or intends to advance, a business or legal position contrary to the Company’s interests. Notwithstanding the foregoing, Executive shall not be entitled to any indemnification if a judgment or other final adjudication establishes that any act or omission of Executive was material to the cause of action so adjudicated and that such act or omission constituted: (i) a criminal violation, unless Executive had reasonable cause to believe that Executive’s conduct was lawful or had no reasonable cause to believe that such conduct was unlawful, (ii) a transaction from which Executive derived an improper personal benefit, or (iii) willful misconduct or a conscious disregard for the best interests of the Company.

(i) Automobile Allowance. The Company will pay Executive $1,100 per month (paid quarterly) which shall be used for the lease, purchase, maintenance and/or operation of a vehicle that Executive is to use for business travel or may use for personal travel. Executive shall be solely responsible for any taxes associated with the automobile allowance afforded to him. Executive shall be expected to maintain a valid driver’s license and retain appropriate automobile and liability insurance coverage.

(j) Other Perquisites . The Company will provide Executive with such other perquisites as may be made generally available to others in a similar level of executive position within the Company.

 

SECTION 5. TERMINATION OF EMPLOYMENT

(a) General; Non- Renewal . The Board of Directors shall have the right to terminate Executive’s employment and this Agreement at any time with or without Cause, and Executive shall have the right to terminate his employment and this Agreement at any time with or without Good Reason; provided that obligations under this Section 5, Section 6 and Section 7 shall survive termination of the Agreement. The Board of Directors may delegate its powers to terminate the Executive to the persons to whom the Executive reports. In the event the Company elects not to renew the Executive’s employment following the end of the Term with compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement, but the Executive is willing and able to enter into a renewal of this

 

8


Agreement with compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement, then upon termination of the Executive’s employment, (i) the Company shall pay the Executive his normal base twelve (12) months salary over a six month period beginning six (6) months following the Termination Date (subject in each case to such withholdings as required by law), and (ii) the Company shall continue until the earlier to occur of the end of the Continuation Period or until such time as the Executive commences a new job, to maintain in effect for such Executive at the Company’s cost the Executive’s Current Insurance Coverage; provided that if the taxable value of the continued life and accident and disability coverage to Executive during the first six (6) months following the Termination Date exceeds the annual dollar limit in effect under Code Section 402(g)(1)(B) for the year of such termination, then the Executive shall pay the premiums in excess of such limit for such coverage during such six (6)-month period and after the end of such six (6)-month period, the Company shall reimburse the Executive for the amount of the premiums paid by the Executive, without interest thereon. If the Company intends to offer to renew the Executive’s employment following the end of the Term it will present its offer no later than thirty (30) days before the end of the Term. If the offer contains compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement and the Executive does not accept that offer within thirty (30) days following the offer having been made, then upon the expiration of the then current Term of this Agreement, the Executive shall be deemed to have terminated his or her employment without Good Reason.

(b) Termination by Board of Directors without Cause or by Executive for Good Reason . If (i) the Board of Directors terminates Executive’s employment without Cause, or (ii) Executive resigns for Good Reason, then in either of those circumstances, the Company’s only obligation to Executive under this Agreement (except as provided in §5(f) hereof) shall be to pay Executive his earned but unpaid base salary, if any, up to the date of his termination of employment, plus 100% of his current total Annual Base Salary as specified in Section 4(a) (subject to such withholdings as required by law) payable in periodic payments (consistent with the payroll periods then in effect) for twelve (12) consecutive months beginning six (6) months following the Termination Date. During the Continuation Period the Executive shall also continue to receive, at the Company’s cost, the Current Insurance Coverage; provided that if the taxable value of the continued life and accident and disability coverage to Executive during the first six (6) months following the Termination Date exceeds the annual dollar limit in effect under Code Section 402(g)(1)(B) for the year of such termination, then the Executive shall pay the premiums in excess of such limit for such coverage during such six (6)-month period and after the end of such six (6)-month period, the Company shall reimburse the Executive for the amount of the premiums paid by the Executive, without interest thereon.

 

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(c) Termination by the Board of Directors for Cause or by Executive without Good Reason . If the Board of Directors of the Company terminates Executive’s employment for Cause or Executive resigns without Good Reason, the Company’s only obligation to Executive under this Agreement shall be to pay Executive his earned but unpaid base salary, if any, up to the date of his termination of employment, and the Company shall have no obligation to pay any Earned Bonus or Incentive Compensation with respect to the year during which the Termination Date occurs. The Company shall only be obligated to make such payments and provide such benefits under any employee benefit plan, program or policy in which Executive was a participant as are explicitly required to be paid to Executive by the terms of any such benefit plan, program or policy following the Termination Date.

(d) Termination for Disability . Subject to the definitions and requirements of Section 2 (“Disability”), after six (6) consecutive months of such disability leave of absence, Executive’s service may be terminated by Company. In the event Executive is terminated from employment due to Disability, the Company shall:

(i) pay Executive his Annual Base Salary through the end of the month in which his employment terminates as soon as practicable after his employment terminates; provided that if such payment exceeds the applicable dollar amount in effect under Code Section 402(g)(1)(B) for the year in which such termination occurs, then the payment in excess of such applicable dollar amount shall be paid following six (6) months after the Executive’s Termination Date;

(ii) pay Executive his Earned Bonus, pro rata and if any, for the fiscal year in which such termination of employment occurs, which amount shall be paid at the same time the Earned Bonus would have been paid had Executive remained in employment;

(iii) pay Executive an additional nine (9) months of compensation at the then-Annual Base Salary, which aggregate amount shall be payable in equal semi-monthly installments beginning not earlier than six (6) months following the Termination Date and continuing for nine (9) months thereafter;

(iv) pay or cause the payment of benefits to which Executive is entitled under the terms of any disability plan of the Company covering the Executive at the time of such Disability:

(v) pay premiums for COBRA coverage as provided in Section 5(g);

 

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(vi) make such payments and provide such benefits as otherwise called for under the terms of each other employee benefit plan, program and policy in which Executive was a participant; provided no payments made under Section 5(d)(ii) or Section 5(d)(iii) shall be taken into account in computing any payments or benefits described in this Section 5(d)(iv); and

(vii) in the event the Executive has any options or restricted shares (but excluding “performance shares” which shall be governed by the terms set forth in the grant as to such shares) which are not vested on the date of termination for Disability, then pay to the Executive (i) as to any unvested options, the net value of the excess, if any, of the closing price of the Company’s shares on the NASDAQ for the day on which the termination due to Disability occurs and the exercise price of such unvested options multiplied by the number of shares subject to options which failed to vest; and (ii) as to any unvested restricted shares, the value of the closing price of the Company’s shares on the NASDAQ for the day on which the termination due to Disability occurs multiplied by the number of restricted shares, if any, which failed to vest due to such termination of employment for Disability.

Notwithstanding the Executive’s Disability, during the period of Disability leave, Executive shall be paid in full (net of insurance) as if he or she were actively performing services. Executive agrees to simultaneously utilize available leave under the Family and Medical Leave Act of 1993 during such disability leave of absence. During the period of such Disability leave of absence, the Board of Directors may designate someone to perform Executive’s duties. Executive shall have the right to return to full-time service so long as he is able to resume and faithfully perform his full-time duties.

(e) Death . If Executive’s employment terminates as a result of his death, the Company shall:

(i) pay to Executive’s estate his Annual Base Salary through the end of the month in which his employment terminates as soon as practicable after his death;

(ii) pay to Executive’s estate his Earned Bonus, when actually determined, for the year in which Executive’s death occurs;

 

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(iii) make such payments and provide such benefits as otherwise called for under the terms of each other employee benefit plan, program and policy in which Executive was a participant; provided no payments made under Section 5(e)(ii) shall be taken into account in computing any payments or benefits described in this Section 5(e)(iii); and

(iv) in the event the Executive has any options or restricted shares (but excluding “performance shares” which shall be governed by the terms set forth in the grant as to such shares) which are not vested on the date of termination for death, then pay to the Executive’s estate (i) as to any unvested options, the net value of the excess, if any, of the closing price of the Company’s shares on the NASDAQ for the day on which the death occurred and the exercise price of such unvested options multiplied by the number of shares subject to options which failed to vest; and (ii) as to any unvested restricted shares, the value of the closing price of the Company’s shares on the NASDAQ for the day on which the death occurred multiplied by the number of restricted shares, if any, which failed to vest due to such termination of employment for death.

Any amounts payable to Executive under this Agreement which are unpaid at the date of Executive’s death or payable hereunder or otherwise by reason of his death, shall be paid in accordance with the terms of this Agreement to Executive’s estate; provided that if there is a specific beneficiary designation in place for any specific amount payable, then payment of such amount shall be made to such beneficiary.

(f) Change in Control . If a Change in Control occurs, then for a period beginning on the occurrence of the Change in Control and ending two years following that occurrence (the “ Post Change in Control Period ”):

(i) In addition to the other events constituting Good Reason under this Agreement, the following shall also constitute Good Reason: if the Executive is willing and able to continue employment with the Company but the Company exercises its right to either not renew this Agreement, or only offers to renew this Agreement only under conditions or terms which would constitute a “ material change ” (as that term is defined in the definition of Good Reason), provided, however, that notice of exercise of the Executive’s termination for Good Reason must be received by the Company during the Post Change in Control Period and not later than thirty (30) days after the Company exercises its right not to renew this Agreement or to renew the Agreement only on terms which would constitute a “ material change ”; and

 

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(ii) In the event of termination of the Executive’s employment with the Company pursuant to §5(b) hereof either by the Company without Cause, or by the Executive for Good Reason (as such term is expanded to include the circumstances described in §5(f)(i) above), with notice of such termination given within the Post Change in Control Period, then the Executive shall receive the following (the “ CIC Severance Payments ”) in a lump sum payable in funds immediately available in Jacksonville, Florida not earlier than six (6) months following the Termination Date and not later than seven (7) months following Termination Date: an amount equal to 200% of the sum of (A) the total of severance payments (other than continued insurance coverage) provided under §5(b) of this Agreement (and in lieu thereof), and (B) the Earned Bonus in the year of the Termination Date. For purposes of this subsection (f) Earned Bonus shall not be prorated and shall be an amount equal to “Target” bonus as defined in the Company’s incentive compensation plan in effect from time to time.

(g) Benefit Continuation . Provided Executive is eligible for COBRA coverage, and has not been terminated from employment for Cause or resigned without Good Reason, then the Company shall pay the Executive’s COBRA premiums commencing on the date of the Executive’s termination of employment and continuing for the applicable Continuation Period in order to continue Executive’s health insurance coverage and maintain such coverage in effect; provided that following the end of the COBRA continuation period, if Executive’s health insurance coverage is provided under a health plan that is subject to Code Section 105(h), benefits payable under such health plan shall comply with the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv) and, if necessary, the Company shall amend such health plan to comply therewith.

(h) Relinquishment of Corporate Positions . Executive shall automatically cease to be an officer and/or director of the Company and its affiliates as of his date of termination of employment.

(i) Limitation. Anything in this Agreement to the contrary notwithstanding, Executive’s entitlement to or payments under any other plan or agreement shall be limited to the extent necessary so that no payment to be made to Executive on account of termination of his employment with the Company will be subject to the excise tax imposed by Code Section 4999, but only if, by reason of such limitation, Executive’s net after tax benefit shall exceed the net after tax benefit if such reduction were not made. “Net after tax benefit” shall mean (i) the sum of all payments and benefits that Executive is then entitled to receive under any section of this Agreement or other plan or agreement that would constitute a “parachute payment” within the meaning of Section 280G of the Code, less (ii) the amount of federal income tax payable with respect to the payments and benefits described in

 

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clause (i) above calculated at the maximum marginal income tax rate for each year in which such payments and benefits shall be paid to Executive (based upon the rate in effect for such year as set forth in the Code at the time of the first payment of the foregoing), less (iii) the amount of excise tax imposed with respect to the payments and benefits described in clause (i) above by Section 4999 of the Code. Any limitation under this Section 5(i) of Executive’s entitlement to payments shall be made in the manner and in the order directed by Executive.

 

SECTION 6. COVENANTS BY EXECUTIVE

(a) Company Property . Upon the termination of Executive’s employment for any reason, Executive shall promptly return all Company Property which had been entrusted or made available to Executive by the Company. “ Property ” means all records, files, memoranda, communication, reports, price lists, plans for current or prospective business operations, customer lists, drawings, plans, sketches, keys, codes, computer hardware and software and other property of any kind or description prepared, used or possessed by Executive during Executive’s employment by the Company (and any duplicates of any such Property) together with any and all information, ideas, concepts, discoveries, processes, intellectual property, inventions and the like conceived, made, developed or acquired at any time by Executive individually or with others during Executive’s employment which relate to the Company or its products or services or operations.

(b) Trade Secrets . Executive agrees that Executive shall hold in a fiduciary capacity for the benefit of the Company and shall not directly or indirectly use or disclose any Trade Secret that Executive may have acquired during the term of Executive’s employment by the Company for so long as such information remains a Trade Secret. “ Trade Secret ” means information, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing or a process that (1) derives economic value, actual or potential, from not being generally known to, and not being generally readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (2) is the subject of reasonable efforts by the Company to maintain its secrecy. This Section 6(b) is intended to provide rights to the Company which are in addition to, not in lieu of, those rights the Company has under the common law or applicable statutes for the protection of trade secrets.

(c) Confidential Information . During the Employment Term and continuing thereafter indefinitely, Executive shall hold in a fiduciary capacity for the benefit of the Company, and shall not directly or indirectly use or disclose, any Confidential Information that Executive may have acquired (whether or not developed or compiled by Executive and whether or not Executive is authorized to have access to such information) during the term of, and in the course of, or as a result of

 

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Executive’s employment by the Company without the prior written consent of the Board of Directors unless and except to the extent that such disclosure is (i) made in the ordinary course of Executive’s performance of his duties under this Agreement or (ii) required by any subpoena or other legal process (in which event Executive will give the Company prompt notice of such subpoena or other legal process in order to permit the Company to seek appropriate protective orders). “ Confidential Information ” means any secret, confidential or proprietary information possessed by the Company or any of its subsidiaries or affiliates, including, without limitation, trade secrets, customer or supplier lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies, price lists, market studies, business plans, operational methods, marketing plans or strategies, advertising campaigns, information regarding customers or suppliers, computer software programs (including object code and source code), data and documentation data, base technologies, systems, structures and architectures, inventions and ideas, past current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans and new personnel acquisition plans and the terms and conditions of this Agreement that has not become generally available to the public.

(d) Remedies . Executive recognizes that his duties will entail the receipt of Trade Secrets and Confidential Information as defined in this Section 6. Those Trade Secrets and Confidential Information have been developed by the Company at substantial cost and constitute valuable and unique property of the Company. Accordingly, the Executive acknowledges that protection of Trade Secrets and Confidential Information is a legitimate business interest. If the Executive shall breach the covenants contained in this Section 6, the Company shall have no further obligation to make any payment to the Executive pursuant to this Agreement and may recover from the Executive all such damages as it may be entitled to at law or in equity. In addition, the Executive acknowledges that any such breach is likely to result in irreparable harm to the Company. The Company shall be entitled to specific performance of the covenants in this Section 6, including entry of a temporary restraining order in state or federal court, preliminary and permanent injunctive relief against activities in violation of this Section 6, or both, or other appropriate judicial remedy, writ or order, in addition to any damages and legal expenses which the Company may be legally entitled to recover. Executive acknowledges and agrees that the covenants in this Section 6 shall be construed as agreements independent of any other provision of this Agreement or any other agreement between the Company and Executive, and that the existence of any claim or cause of action by Executive against the Company, whether predicated upon this Agreement or any other agreement, shall not constitute a defense to the enforcement by the Company of such covenants.

 

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(e) Non-Solicitation . During the Employment Term and for a period of two years hereafter (such period is referred to as the “No Recruit Period”), the Executive will not solicit or attempt to solicit, either directly or indirectly, any person that he knows or should reasonably know to be an employee of the Company, whether any such employees are now or hereafter through the No Recruit Period so employed or engaged to terminate or alter their employment with the Company. The foregoing is not intended to limit any legal rights or remedies that any employee of the Company may have under common law with regard to any interference by Executive at any time with the contractual relationship the Company may have with any of its employees.

(f) Reasonable and Continuing Obligations . Executive agrees that Executive’s obligations under this Section 6 are obligations which will continue beyond the date Executive’s employment terminates and that such obligations are reasonable, fair and equitable in scope. The terms and duration are necessary to protect the Company’s legitimate business interests and are a material inducement to the Company to enter into this Agreement. Executive further acknowledges that the consideration for this Section 6 is his employment or continued employment. Executive will not be paid any additional compensation for application or enforcement of the restrictive covenants contained in this Section 6.

(g) Work Product. The term “Work Product” includes any and all information, programs, concepts, processes, discoveries, improvements, formulas, know-how and inventions, in any form whatsoever, relating to the business or activities of the Company, or resulting from or suggested by any work developed by the Executive in connection with the Company, or by the Executive at the Company’s request. Executive acknowledges that all Work Product developed during the Term is property of the Company and accordingly, Executive does hereby irrevocably assign all Work Product developed by the Executive to the Company and agrees: (a) to assign to the Company, free from any obligation of the Company to the Executive, all of the Executive’s right, title and interest in and to Work Product conceived, discovered, researched, or developed by the Executive either solely or jointly with others during the term of this Agreement and for three (3) months after the termination or nonrenewal of this Agreement; and (b) to disclose to the Company promptly and in writing such Work Product upon the Executive’s acquisition thereof.

(h) Cooperation. During and subsequent to termination of the employment of the Executive, the Executive will cooperate with Company and furnish any and all complete and truthful information, testimony or affidavits in connection with any matter that arose during the Executive’s employment, that in any way relates to the business or operations of the Company or any of its subsidiary corporations, divisions or affiliates, or of which the Executive may have any knowledge or involvement; and will consult with and provide information to Company and its

 

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representatives concerning such matters. Subsequent to the termination of the employment of the Executive, the parties will make their best efforts to have such cooperation performed at reasonable times and places and in a manner as not to unreasonably interfere with any other employment in which Executive may then be engaged. Nothing in this Agreement shall be construed or interpreted as requiring the Executive to provide any testimony, sworn statement or declaration that is not complete and truthful. If Company requires the Executive to travel outside the metropolitan area in the United States where the Executive then resides to provide any testimony or otherwise provide any such assistance, then Company will reimburse the Executive for any reasonable, ordinary and necessary travel and lodging expenses incurred by Executive to do so provided the Executive submits all documentation required under Company’s standard travel expense reimbursement policies and as otherwise may be required to satisfy any requirements under applicable tax laws for Company to deduct those expenses. Nothing in this Agreement shall be construed or interpreted as requiring the Executive to provide any testimony or affidavit that is not complete and truthful

 

SECTION 7. MISCELLANEOUS

(a) Notices . Notices and all other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail. Notices to the Company shall be sent to:

STEIN MART, INC

Attention: General Counsel

1200 Riverplace Boulevard, 10th Floor

Jacksonville, FL 32207

Facsimile: (904) 346-1297

Notices and communications to Executive shall be sent to the address Executive most recently provided to the Company.

(b) No Waiver . No failure by either the Company or Executive at any time to give notice of any breach by the other of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of any provisions or conditions of this Agreement.

 

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(c) Governing Law . This Agreement shall be governed by Florida law without reference to the choice of law principles thereof.

(d) Assignment . This Agreement shall be binding upon and inure to the benefit of the Company and any successor in interest to the Company or any segment of such business. The Company may assign this Agreement to any affiliate or successor that acquires all or substantially all of the assets and business of the Company or a majority of the voting interests of the Company. The Company will require any successor (whether direct or indirect, by operation of law, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Company) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean Company as defined above and, unless the context otherwise requires, any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Executive’s rights and obligations under this Agreement are personal and shall not be assigned or transferred.

(e) Other Agreements . This Agreement replaces and merges any and all previous agreements and understandings regarding all the terms and conditions of Executive’s employment relationship with the Company, and this Agreement constitutes the entire agreement between the Company and Executive with respect to such terms and conditions.

(f) Amendment . No amendment to this Agreement shall be effective unless it is in writing and signed by the Company and by Executive.

(g) Invalidity and Severability . If any part of this Agreement is held by a court of competent jurisdiction to be invalid or otherwise unenforceable, the remaining part shall be unaffected and shall continue in full force and effect, and the invalid or otherwise unenforceable part shall be deemed not to be part of this Agreement.

(h) Litigation . In the event that either party to this Agreement institutes litigation against the other party to enforce his or its respective rights under this Agreement, each party shall pay its own costs and expenses incurred in connection with such litigation. As a material part of the consideration for this Agreement, BOTH PARTIES HERETO WAIVE ANY RIGHT TO A TRIAL BY A JURY in the event of any litigation arising from this Agreement. All legal actions arising out of or connected with this Agreement must be instituted solely in the Circuit Court of Duval County, Florida, or in the Federal District Court for the Middle District of Florida, Jacksonville Division, and all parties hereto do hereby agree to submit to the

 

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exclusive personal jurisdiction of such courts. Each of the parties hereby expressly and irrevocably submits to the jurisdiction of such courts for the purposes of any such action and expressly and irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter may have to the laying of venue of any such action brought in any such court and any claim that any such action has been brought in an inconvenient forum. Notwithstanding the foregoing, in the event of litigation to enforce this Agreement following a Change of Control, the costs including reasonable attorneys’ fees and reasonable expenses of the prevailing party shall be paid by the party which did not prevail.

(i) Counterparts . This Agreement may be executed in counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF , the Company and Executive have executed this Agreement effective as of the Effective Date.

 

STEIN MART, INC.     EXECUTIVE
By:  

/s/ D. Hunt Hawkins

   

/s/ Gregory W. Kleffner

Name:   D. Hunt Hawkins      
Title:   EVP, Chief Operating Officer      
Date:   7/31/2013     Date:   7/31/2013

 

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SCHEDULE A

BENEFITS

 

1. Retirement Plan/Life Insurance/AD&D

The Executive shall be entitled to participate in all retirement plans and will be entitled to life insurance and AD&D benefits which other senior executives of the Company or affiliates of the Company are eligible.

 

2. Long-Term Disability

The Executive shall be entitled to participate in all Long-Term and Life Time Disability plans which other senior executives of the Company or affiliates of the Company are eligible.

 

3. Medical/Dental Benefits

The Executive shall be entitled to medical/dental benefits which other senior executives of the Company or affiliates of the Company are eligible.

 

4. Unavoidable Change in Travel Arrangements

In the event Executive has arranged for travel between Jacksonville and Los Angeles, the Company will reimburse Executive for any change fees or fare increases resulting from any change in Executive’s itinerary made at the request of the Company.

 

5. Benefit Plans

Executive’s eligibility to participate in the aforementioned Benefit Plans is subject to the terms and condition of the specific plan documents and any conflict between this Agreement and the plan documents shall be controlled by the terms of the plan. The Company reserves the right to amend, modify or cancel any of the benefit plans currently provided.

 

A-1

Exhibit 10.18

D. Hunt Hawkins

AGREEMENT

WITH

STEIN MART, INC.

This Agreement (this “ Agreement ”) entered into in the City of Jacksonville and State of Florida between Stein Mart, Inc ., a Florida corporation and its divisions, subsidiaries and affiliates (the “ Company ”), and D. Hunt Hawkins (“ Executive ”), is made as of September 15, 2013 (the “ Effective Date ”).

In consideration of the promises and mutual covenants contained herein, the parties, intending to be legally bound, agree as follows:

 

SECTION 1. TERM OF EMPLOYMENT

(a) Term . The Company agrees to employ Executive, and Executive agrees to be employed by the Company, for a period of two (2) year(s) beginning on the Effective Date (the “ Term ”).

 

SECTION 2. DEFINITIONS

“Board of Directors” means the Board of Directors of Stein Mart, Inc. and any of its divisions, affiliates or subsidiaries.

“Cause” means the occurrence of any one or more of the following:

(a) Executive has been convicted of, or pleads guilty or nolo contendere to, a felony involving dishonesty, theft, misappropriation, embezzlement, fraud crimes against property or person, or any act of moral turpitude which negatively impacts the Company; or

(b) Executive intentionally furnishes materially false, misleading, or omissive information concerning a substantial matter to the Company or persons to whom the Executive reports; or

(c) Executive intentionally fails to fulfill any assigned responsibilities for compliance with the Sarbanes-Oxley Act of 2002 or violates the same; or


(d) Executive intentionally and wrongfully damages material assets of the Company; or

(e) Executive Wrongly discloses Confidential Information of the Employer; or

(f) Executive engages in any activity which would constitute a breach of the duty of loyalty; or

(g) Executive breaches any stated employment policy or provision of the Company’s Ethics Policy which could reasonably be expected to expose the Company to liability or negatively impact the Company or its business reputation, or

(h) Executive commits a material breach of this Agreement, or

(i) Executive engages in acts or omissions which constitute a failure to follow reasonable and lawful directives of the Company, provided, however, that such acts or omissions are not cured by Executive within five (5) days following the Company’s giving notice to Executive that the Company considers such acts or omissions to be “Cause” under this Agreement.

Failure to meet performance standards or objectives that does not involve any acts or omissions indentified in (a) through (i) above shall not constitute Cause for purposes hereof.

Change in Control means the occurrence of any of the following: (a) the Board approves the sale of all or substantially all of the assets of the Company in a single transaction or series of related transactions; (b) the Company sells and/or one or more shareholders sells a sufficient amount of its capital stock (whether by tender offer, original issuance, or a single or series of related stock purchase and sale agreements and/or transactions) sufficient to confer on the purchaser or purchasers thereof (whether individually or a group acting in concert) beneficial ownership of at least 35% of the combined voting power of the voting securities of the Company; (c) the Company is party to a merger, consolidation or combination, other than any merger, consolidation or combination that would result in the holders of the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation or combination; or (d) a majority of the board of directors consists of individuals who are not Continuing Directors (for this purpose, a Continuing Director is an individual who (i) was a director of the Company on July 1, 2013 or (ii) whose election or nomination as a director of the Company is approved by a vote of at least a majority of the directors then

 

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comprising the Continuing Directors). For purposes hereof, the definition of a Change of Control shall be construed and interpreted so as to comply with the definition contained in Code Section 409A.

Code ” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code shall be deemed to refer to any successor provision thereto and the regulations promulgated thereunder.

Commencement Date ” means February 2, 2010, the date the Executive shall report for work and assume Executive’s responsibilities hereunder.

“Compensation Committee” means the Company’s Compensation Committee or, if no such committee exists, the term Compensation Committee shall mean the Company’s Board of Directors.

Continuation Period ” means a period following the Termination Date of the Executive’s employment with the company equal to:

(a) twelve (12) months (i) following a termination by the Company due to a non-renewal of the Term of this Agreement under §5(a) hereof, or (ii) following a termination by the Company without Cause or by the Executive for Good Reason under §5(b) hereof, or

(b) twenty-four (24) months following a termination (i) by the Company without Cause following a Change in Control under §5(f)(i) hereof, or (ii) by the Executive for Good Reason following a Change in Control under §5(b) as the definition of Good Reason is expanded in §5(b)(i) hereof.

The Continuation Period is zero months following (i) a termination by the Company for Cause, (ii) a termination by the Executive without Good Reason, or (iii) a failure of the Executive to accept the Company’s offer of renewal of the Term of this Agreement under §5(a) hereof.

Current Insurance Coverage ” means medical, dental, life and accident and disability insurance with coverage consistent with the lesser of (i) the coverage in effect at Executive’s termination, or (ii) the coverage in effect from time to time as applied to persons in positions similar to the position held by Executive at the time of termination.

Disability” means Executive’s incapacity due to physical or mental illness or cause, which results in the Executive being unable to perform his duties with Company on a full-time basis for a period of six (6) consecutive months. Any dispute as to disability shall be conclusively determined by written opinions rendered by two qualified physicians, one selected by Executive, and one selected by Company; provided that if such opinions are conflicting, then such physicians shall select a mutually agreeable third physician whose opinion shall be conclusive and binding.

 

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“Earned Bonus” means the bonus paid, if any, pursuant to the Company’s incentive compensation plans in effect from time to time. Earned Bonus shall be prorated based on the ratio of the number of days during such year that Executive was employed to 365.

Good Reason ” means the occurrence of any one or more of the following:

 

  (i) a material and continuing failure to pay to Executive compensation and benefits (as described in Section 4 ) that have been earned, if any, by Executive, except failure to pay or provide compensation or benefits that are in dispute between the Company and the Executive unless such failure continues following the resolution of such dispute; or

 

  (ii) a substantial reduction in Executive’s compensation or benefits (as described in Section 4 ) which is materially more adverse to the Executive than similar reductions applicable to other executives of a similar level of status within the Company as Executive; or

 

  (iii) any failure by the Company to comply with any of the material provisions of this Agreement and which is not remedied by the Company within thirty (30) days after receipt of notice thereof given by Executive; or

 

  (iv) any requirement that Executive perform duties that, in the good faith and reasonable professional judgment of Executive, after consultation with the Board of Directors of the Company, are inconsistent with ethical or lawful business practices; or

 

  (v) Executive’s being required to relocate to a principal place of employment more than one-hundred (100) miles from his current principal place of employment in Jacksonville, Florida during the Term unless the Company shall pay all reasonable costs and expenses related thereto; or

 

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  (vi) If following a Change in Control only, there occurs a material change in Executive’s duties, roles, or responsibilities. For purposes of this subsection, “material change” shall be of such a character that a reasonable person serving in a like or similar executive capacity would feel compelled to resign from employment. Examples of “material change” include, but are not limited to substantial reduction of Executive’s authority to make decisions relating to his or her business responsibilities; Executive being required to assume or perform substantially greater responsibilities (without additional compensation) than previously required to perform; substantial reduction of Executive’s responsibilities for personnel matters relating to his or her business operations;; any restructuring or reassignment of any of the Executive’s responsibilities, in a manner that diminishes them or is materially adverse to the Executive, from that which was in effect at the time of the Change in Control; and other substantial changes in Executive’s terms or conditions of employment not related to Executive’s principal business responsibilities. Good Reason pursuant to this subsection shall not exist unless (a) the Executive’s “material change” has existed for a period of at least six months; (b) Executive has consulted with management senior to Executive and his or her supervisor, in a good faith effort to resolve the issues giving Executive reason to believe a “material change” has occurred; and (c) Executive gives written notice of Executive’s resignation for Good Reason under this paragraph within eight months following the commencement of the “material change”.

Termination Date ” means the date of Executive’s termination of employment, or if the Executive continues to provide services to Stein Mart, Inc. or its 409A affiliates following his termination of employment, such later date as is considered a separation from service from Stein Mart, Inc. and its 409A affiliates within the meaning of Code Section 409A. For purposes of this Agreement, the Executive’s “termination of employment” shall be presumed to occur when Stein Mart, Inc. and the Executive reasonably anticipate that no further services will be performed by the Executive for Stein Mart, Inc. and its 409A affiliates or that the level of bona fide services the Executive will perform as an employee of Stein Mart, Inc. and its 409A affiliates will permanently decrease to no more than 20% of the average level of bona fide services performed by the Executive (whether as an employee or independent contractor) for Stein Mart, Inc. and its 409A affiliates over the immediately preceding 36-month period (or such lesser period of services). Whether the Executive has experienced a termination of employment shall be determined by Stein Mart, Inc. in good faith and consistent with Section 409A of the Code. Notwithstanding the foregoing, if the Executive takes a leave of absence for purposes of military leave, sick leave or other bona fide reason, the Executive will not be deemed to have experienced a termination of employment for the first six (6) months of the leave of absence, or if longer, for so long as the Executive’s right to reemployment is provided either by statute or by contract, including this Agreement; provided that if the leave of absence is due to a

 

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medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than six (6) months, where such impairment causes the Executive to be unable to perform the duties of his position of employment or any substantially similar position of employment, the leave may be extended by Stein Mart, Inc. for up to 29 months without causing a termination of employment. For purposes hereof, the term “409A affiliate” means each entity that is required to be included in Stein Mart, Inc.’s controlled group of corporations within the meaning of Section 414(b) of the Code, or that is under common control with Stein Mart, Inc. within the meaning of Section 414(c) of the Code; provided, however , that the phrase “at least 50 percent” shall be used in place of the phrase “at least 80 percent” each place it appears therein or in the regulations thereunder.

 

SECTION 3. TITLE, POWERS AND RESPONSIBILITIES

(a) Title . Executive shall be an Executive Vice-President Chief Operating Officer of the Company or such other title as designated by the Chief Executive Officer or the Company’s Board of Directors. Executive shall assume those duties on the Commencement Date.

(b) Powers and Responsibilities .

 

  (i) Executive shall use Executives best efforts to faithfully perform the duties of his employment and shall perform such duties as are usually performed by a person serving in Executive’s position with a business similar in size and scope as the Company and such other additional duties as may be prescribed from time to time by the Company which are reasonable and consistent with the Company’s operations, taking into account officer’s expertise and job responsibilities. Executive agrees to devote Executive’s full business time and attention to the business and affairs of the Company. Executive shall serve on such boards and in such offices of the Company or its subsidiaries as the Company’s Board of Directors reasonably requests without additional compensation.

 

  (ii) Executive, as a condition to his employment under this Agreement, represents and warrants that he can assume and fulfill responsibilities described in Section 3(b)(i) without any risk of violating any non-compete or other restrictive covenant or other agreement to which he is a party. During the Employment Term Executive shall not enter into any agreement that would preclude, hinder or impair his ability to fulfill responsibilities described in Section 3(b)(i) specifically or this Agreement generally.

 

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SECTION 4. COMPENSATION AND BENEFITS

(a) Annual Base Salary . Executive’s base salary shall be $436,687.48 per year (“ Annual Base Salary ”) beginning on the Commencement Date, which amount may be periodically reviewed at the discretion of the Compensation Committee. The Annual Base Salary and any payments to the Executive during any Continuation Period shall be payable in accordance with the Company’s standard payroll practices and policies (unless otherwise expressly provided herein) and shall be subject to such withholdings as required by law or as otherwise permissible under such practices or policies.

(b) Earned Bonus; Incentive Compensation; Executive shall be eligible to receive an Earned Bonus. Executive shall also be eligible to participate in such annual and long term incentive plans as are in effect from time to time as applicable to persons at Executive’s level of authority and position. Nothing in this Section 4(b) guarantees that any Earned Bonus or other incentive compensation will be paid.

(c) Employee Benefit Plans . Executive shall be entitled to receive the benefits described in Schedule A attached hereto, if and for as long as the Company sponsors such plans and such plans remain in effect for other executives with the same level of status as Executive.

(d) Stock Options . The Board of Directors, in its discretion, may grant rights to Executive under the Stein Mart, Inc. Omnibus Plan (the “ Option Plan ”) on terms set by the Board of Directors or the Compensation Committee.

(e) Deferred Compensation . Executive will participate in the Stein Mart Executive Deferred Compensation Plan (the “ Deferred Compensation Plan ”). The Company reserves the right to alter, modify, revise or eliminate the Deferred Compensation Plan provided that any such change to the terms will apply to Executive and similarly situated participants.

(f) Vacation, Holidays and Salary Continuation. Executive shall receive a total of 27 days of paid vacation, or holidays on a pro rata basis during any 365 day period of the Term. The amount may be adjusted in accordance with the Company’s standard policy or as directed by the Company’s Board of Directors. Any vacation or holiday leave time not used during any 365 day period of the Term will not carry forward to the next 365 period and will be forfeited.

(g) Expense Reimbursements . Executive shall have the right to expense reimbursements in accordance with the Company’s standard policy on expense reimbursements as in effect from time to time.

 

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(h) Indemnification . With respect to Executive’s acts or failures to act during his employment in his capacity as an officer, employee or agent of the Company, Executive shall be entitled to indemnification from the Company, and to liability insurance coverage (if any), on the same basis as other officers of the Company. Executive shall be indemnified by Company, and Company shall pay Executive’s related expenses when and as incurred, all to the full extent permitted by law. Subject to applicable law, the Company reserves the right to discontinue indemnification in the event the Company determines that the Executive has breached this Agreement or the Executive has advances, or intends to advance, a business or legal position contrary to the Company’s interests. Notwithstanding the foregoing, Executive shall not be entitled to any indemnification if a judgment or other final adjudication establishes that any act or omission of Executive was material to the cause of action so adjudicated and that such act or omission constituted: (i) a criminal violation, unless Executive had reasonable cause to believe that Executive’s conduct was lawful or had no reasonable cause to believe that such conduct was unlawful, (ii) a transaction from which Executive derived an improper personal benefit, or (iii) willful misconduct or a conscious disregard for the best interests of the Company.

(i) Automobile Allowance. The Company will pay Executive $1,100 per month (paid quarterly) which shall be used for the lease, purchase, maintenance and/or operation of a vehicle that Executive is to use for business travel or may use for personal travel. Executive shall be solely responsible for any taxes associated with the automobile allowance afforded to him. Executive shall be expected to maintain a valid driver’s license and retain appropriate automobile and liability insurance coverage.

(j) Other Perquisites . The Company will provide Executive with such other perquisites as may be made generally available to others in a similar level of executive position within the Company.

 

SECTION 5. TERMINATION OF EMPLOYMENT

(a) General; Non- Renewal . The Board of Directors shall have the right to terminate Executive’s employment and this Agreement at any time with or without Cause, and Executive shall have the right to terminate his employment and this Agreement at any time with or without Good Reason; provided that obligations under this Section 5, Section 6 and Section 7 shall survive termination of the Agreement. The Board of Directors may delegate its powers to terminate the Executive to the persons to whom the Executive reports. In the event the Company elects not to renew the Executive’s employment following the end of the Term with compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement, but the Executive is willing and able to enter into a renewal of this

 

8


Agreement with compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement, then upon termination of the Executive’s employment, (i) the Company shall pay the Executive his normal base twelve (12) months salary over a six month period beginning six (6) months following the Termination Date (subject in each case to such withholdings as required by law), and (ii) the Company shall continue until the earlier to occur of the end of the Continuation Period or until such time as the Executive commences a new job, to maintain in effect for such Executive at the Company’s cost the Executive’s Current Insurance Coverage; provided that if the taxable value of the continued life and accident and disability coverage to Executive during the first six (6) months following the Termination Date exceeds the annual dollar limit in effect under Code Section 402(g)(1)(B) for the year of such termination, then the Executive shall pay the premiums in excess of such limit for such coverage during such six (6)-month period and after the end of such six (6)-month period, the Company shall reimburse the Executive for the amount of the premiums paid by the Executive, without interest thereon. If the Company intends to offer to renew the Executive’s employment following the end of the Term it will present its offer no later than thirty (30) days before the end of the Term. If the offer contains compensation and benefits not materially less advantageous to the Executive than those set forth in this Agreement and the Executive does not accept that offer within thirty (30) days following the offer having been made, then upon the expiration of the then current Term of this Agreement, the Executive shall be deemed to have terminated his or her employment without Good Reason.

(b) Termination by Board of Directors without Cause or by Executive for Good Reason . If (i) the Board of Directors terminates Executive’s employment without Cause, or (ii) Executive resigns for Good Reason, then in either of those circumstances, the Company’s only obligation to Executive under this Agreement (except as provided in §5(f) hereof) shall be to pay Executive his earned but unpaid base salary, if any, up to the date of his termination of employment, plus 100% of his current total Annual Base Salary as specified in Section 4(a) (subject to such withholdings as required by law) payable in periodic payments (consistent with the payroll periods then in effect) for twelve (12) consecutive months beginning six (6) months following the Termination Date. During the Continuation Period the Executive shall also continue to receive, at the Company’s cost, the Current Insurance Coverage; provided that if the taxable value of the continued life and accident and disability coverage to Executive during the first six (6) months following the Termination Date exceeds the annual dollar limit in effect under Code Section 402(g)(1)(B) for the year of such termination, then the Executive shall pay the premiums in excess of such limit for such coverage during such six (6)-month period and after the end of such six (6)-month period, the Company shall reimburse the Executive for the amount of the premiums paid by the Executive, without interest thereon.

 

9


(c) Termination by the Board of Directors for Cause or by Executive without Good Reason . If the Board of Directors of the Company terminates Executive’s employment for Cause or Executive resigns without Good Reason, the Company’s only obligation to Executive under this Agreement shall be to pay Executive his earned but unpaid base salary, if any, up to the date of his termination of employment, and the Company shall have no obligation to pay any Earned Bonus or Incentive Compensation with respect to the year during which the Termination Date occurs. The Company shall only be obligated to make such payments and provide such benefits under any employee benefit plan, program or policy in which Executive was a participant as are explicitly required to be paid to Executive by the terms of any such benefit plan, program or policy following the Termination Date.

(d) Termination for Disability . Subject to the definitions and requirements of Section 2 (“Disability”), after six (6) consecutive months of such disability leave of absence, Executive’s service may be terminated by Company. In the event Executive is terminated from employment due to Disability, the Company shall:

(i) pay Executive his Annual Base Salary through the end of the month in which his employment terminates as soon as practicable after his employment terminates; provided that if such payment exceeds the applicable dollar amount in effect under Code Section 402(g)(1)(B) for the year in which such termination occurs, then the payment in excess of such applicable dollar amount shall be paid following six (6) months after the Executive’s Termination Date;

(ii) pay Executive his Earned Bonus, pro rata and if any, for the fiscal year in which such termination of employment occurs, which amount shall be paid at the same time the Earned Bonus would have been paid had Executive remained in employment;

(iii) pay Executive an additional nine (9) months of compensation at the then-Annual Base Salary, which aggregate amount shall be payable in equal semi-monthly installments beginning not earlier than six (6) months following the Termination Date and continuing for nine (9) months thereafter;

(iv) pay or cause the payment of benefits to which Executive is entitled under the terms of any disability plan of the Company covering the Executive at the time of such Disability:

(v) pay premiums for COBRA coverage as provided in Section 5(g);

 

10


(vi) make such payments and provide such benefits as otherwise called for under the terms of each other employee benefit plan, program and policy in which Executive was a participant; provided no payments made under Section 5(d)(ii) or Section 5(d)(iii) shall be taken into account in computing any payments or benefits described in this Section 5(d)(iv); and

(vii) in the event the Executive has any options or restricted shares (but excluding “performance shares” which shall be governed by the terms set forth in the grant as to such shares) which are not vested on the date of termination for Disability, then pay to the Executive (i) as to any unvested options, the net value of the excess, if any, of the closing price of the Company’s shares on the NASDAQ for the day on which the termination due to Disability occurs and the exercise price of such unvested options multiplied by the number of shares subject to options which failed to vest; and (ii) as to any unvested restricted shares, the value of the closing price of the Company’s shares on the NASDAQ for the day on which the termination due to Disability occurs multiplied by the number of restricted shares, if any, which failed to vest due to such termination of employment for Disability.

Notwithstanding the Executive’s Disability, during the period of Disability leave, Executive shall be paid in full (net of insurance) as if he or she were actively performing services. Executive agrees to simultaneously utilize available leave under the Family and Medical Leave Act of 1993 during such disability leave of absence. During the period of such Disability leave of absence, the Board of Directors may designate someone to perform Executive’s duties. Executive shall have the right to return to full-time service so long as he is able to resume and faithfully perform his full-time duties.

(e) Death . If Executive’s employment terminates as a result of his death, the Company shall:

(i) pay to Executive’s estate his Annual Base Salary through the end of the month in which his employment terminates as soon as practicable after his death;

(ii) pay to Executive’s estate his Earned Bonus, when actually determined, for the year in which Executive’s death occurs;

 

11


(iii) make such payments and provide such benefits as otherwise called for under the terms of each other employee benefit plan, program and policy in which Executive was a participant; provided no payments made under Section 5(e)(ii) shall be taken into account in computing any payments or benefits described in this Section 5(e)(iii); and

(iv) in the event the Executive has any options or restricted shares (but excluding “performance shares” which shall be governed by the terms set forth in the grant as to such shares) which are not vested on the date of termination for death, then pay to the Executive’s estate (i) as to any unvested options, the net value of the excess, if any, of the closing price of the Company’s shares on the NASDAQ for the day on which the death occurred and the exercise price of such unvested options multiplied by the number of shares subject to options which failed to vest; and (ii) as to any unvested restricted shares, the value of the closing price of the Company’s shares on the NASDAQ for the day on which the death occurred multiplied by the number of restricted shares, if any, which failed to vest due to such termination of employment for death.

Any amounts payable to Executive under this Agreement which are unpaid at the date of Executive’s death or payable hereunder or otherwise by reason of his death, shall be paid in accordance with the terms of this Agreement to Executive’s estate; provided that if there is a specific beneficiary designation in place for any specific amount payable, then payment of such amount shall be made to such beneficiary.

(f) Change in Control . If a Change in Control occurs, then for a period beginning on the occurrence of the Change in Control and ending two years following that occurrence (the “ Post Change in Control Period ”):

(i) In addition to the other events constituting Good Reason under this Agreement, the following shall also constitute Good Reason: if the Executive is willing and able to continue employment with the Company but the Company exercises its right to either not renew this Agreement, or only offers to renew this Agreement only under conditions or terms which would constitute a “ material change ” (as that term is defined in the definition of Good Reason), provided, however, that notice of exercise of the Executive’s termination for Good Reason must be received by the Company during the Post Change in Control Period and not later than thirty (30) days after the Company exercises its right not to renew this Agreement or to renew the Agreement only on terms which would constitute a “ material change ”; and

 

12


(ii) In the event of termination of the Executive’s employment with the Company pursuant to §5(b) hereof either by the Company without Cause, or by the Executive for Good Reason (as such term is expanded to include the circumstances described in §5(f)(i) above), with notice of such termination given within the Post Change in Control Period, then the Executive shall receive the following (the “ CIC Severance Payments ”) in a lump sum payable in funds immediately available in Jacksonville, Florida not earlier than six (6) months following the Termination Date and not later than seven (7) months following Termination Date: an amount equal to 200% of the sum of (A) the total of severance payments (other than continued insurance coverage) provided under §5(b) of this Agreement (and in lieu thereof), and (B) the Earned Bonus in the year of the Termination Date. For purposes of this subsection (f) Earned Bonus shall not be prorated and shall be an amount equal to “Target” bonus as defined in the Company’s incentive compensation plan in effect from time to time.

(g) Benefit Continuation . Provided Executive is eligible for COBRA coverage, and has not been terminated from employment for Cause or resigned without Good Reason, then the Company shall pay the Executive’s COBRA premiums commencing on the date of the Executive’s termination of employment and continuing for the applicable Continuation Period in order to continue Executive’s health insurance coverage and maintain such coverage in effect; provided that following the end of the COBRA continuation period, if Executive’s health insurance coverage is provided under a health plan that is subject to Code Section 105(h), benefits payable under such health plan shall comply with the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv) and, if necessary, the Company shall amend such health plan to comply therewith.

(h) Relinquishment of Corporate Positions . Executive shall automatically cease to be an officer and/or director of the Company and its affiliates as of his date of termination of employment.

(i) Limitation. Anything in this Agreement to the contrary notwithstanding, Executive’s entitlement to or payments under any other plan or agreement shall be limited to the extent necessary so that no payment to be made to Executive on account of termination of his employment with the Company will be subject to the excise tax imposed by Code Section 4999, but only if, by reason of such limitation, Executive’s net after tax benefit shall exceed the net after tax benefit if such reduction were not made. “Net after tax benefit” shall mean (i) the sum of all payments and benefits that Executive is then entitled to receive under any section of this Agreement or other plan or agreement that would constitute a “parachute payment” within the meaning of Section 280G of the Code, less (ii) the amount of federal income tax payable with respect to the payments and benefits described in

 

13


clause (i) above calculated at the maximum marginal income tax rate for each year in which such payments and benefits shall be paid to Executive (based upon the rate in effect for such year as set forth in the Code at the time of the first payment of the foregoing), less (iii) the amount of excise tax imposed with respect to the payments and benefits described in clause (i) above by Section 4999 of the Code. Any limitation under this Section 5(i) of Executive’s entitlement to payments shall be made in the manner and in the order directed by Executive.

 

SECTION 6. COVENANTS BY EXECUTIVE

(a) Company Property . Upon the termination of Executive’s employment for any reason, Executive shall promptly return all Company Property which had been entrusted or made available to Executive by the Company. “ Property ” means all records, files, memoranda, communication, reports, price lists, plans for current or prospective business operations, customer lists, drawings, plans, sketches, keys, codes, computer hardware and software and other property of any kind or description prepared, used or possessed by Executive during Executive’s employment by the Company (and any duplicates of any such Property) together with any and all information, ideas, concepts, discoveries, processes, intellectual property, inventions and the like conceived, made, developed or acquired at any time by Executive individually or with others during Executive’s employment which relate to the Company or its products or services or operations.

(b) Trade Secrets . Executive agrees that Executive shall hold in a fiduciary capacity for the benefit of the Company and shall not directly or indirectly use or disclose any Trade Secret that Executive may have acquired during the term of Executive’s employment by the Company for so long as such information remains a Trade Secret. “ Trade Secret ” means information, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing or a process that (1) derives economic value, actual or potential, from not being generally known to, and not being generally readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (2) is the subject of reasonable efforts by the Company to maintain its secrecy. This Section 6(b) is intended to provide rights to the Company which are in addition to, not in lieu of, those rights the Company has under the common law or applicable statutes for the protection of trade secrets.

(c) Confidential Information . During the Employment Term and continuing thereafter indefinitely, Executive shall hold in a fiduciary capacity for the benefit of the Company, and shall not directly or indirectly use or disclose, any Confidential Information that Executive may have acquired (whether or not developed or compiled by Executive and whether or not Executive is authorized to have access to such information) during the term of, and in the course of, or as a result of

 

14


Executive’s employment by the Company without the prior written consent of the Board of Directors unless and except to the extent that such disclosure is (i) made in the ordinary course of Executive’s performance of his duties under this Agreement or (ii) required by any subpoena or other legal process (in which event Executive will give the Company prompt notice of such subpoena or other legal process in order to permit the Company to seek appropriate protective orders). “ Confidential Information ” means any secret, confidential or proprietary information possessed by the Company or any of its subsidiaries or affiliates, including, without limitation, trade secrets, customer or supplier lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies, price lists, market studies, business plans, operational methods, marketing plans or strategies, advertising campaigns, information regarding customers or suppliers, computer software programs (including object code and source code), data and documentation data, base technologies, systems, structures and architectures, inventions and ideas, past current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans and new personnel acquisition plans and the terms and conditions of this Agreement that has not become generally available to the public.

(d) Remedies . Executive recognizes that his duties will entail the receipt of Trade Secrets and Confidential Information as defined in this Section 6. Those Trade Secrets and Confidential Information have been developed by the Company at substantial cost and constitute valuable and unique property of the Company. Accordingly, the Executive acknowledges that protection of Trade Secrets and Confidential Information is a legitimate business interest. If the Executive shall breach the covenants contained in this Section 6, the Company shall have no further obligation to make any payment to the Executive pursuant to this Agreement and may recover from the Executive all such damages as it may be entitled to at law or in equity. In addition, the Executive acknowledges that any such breach is likely to result in irreparable harm to the Company. The Company shall be entitled to specific performance of the covenants in this Section 6, including entry of a temporary restraining order in state or federal court, preliminary and permanent injunctive relief against activities in violation of this Section 6, or both, or other appropriate judicial remedy, writ or order, in addition to any damages and legal expenses which the Company may be legally entitled to recover. Executive acknowledges and agrees that the covenants in this Section 6 shall be construed as agreements independent of any other provision of this Agreement or any other agreement between the Company and Executive, and that the existence of any claim or cause of action by Executive against the Company, whether predicated upon this Agreement or any other agreement, shall not constitute a defense to the enforcement by the Company of such covenants.

 

15


(e) Non-Solicitation . During the Employment Term and for a period of two years hereafter (such period is referred to as the “No Recruit Period”), the Executive will not solicit or attempt to solicit, either directly or indirectly, any person that he knows or should reasonably know to be an employee of the Company, whether any such employees are now or hereafter through the No Recruit Period so employed or engaged to terminate or alter their employment with the Company. The foregoing is not intended to limit any legal rights or remedies that any employee of the Company may have under common law with regard to any interference by Executive at any time with the contractual relationship the Company may have with any of its employees.

(f) Reasonable and Continuing Obligations . Executive agrees that Executive’s obligations under this Section 6 are obligations which will continue beyond the date Executive’s employment terminates and that such obligations are reasonable, fair and equitable in scope. The terms and duration are necessary to protect the Company’s legitimate business interests and are a material inducement to the Company to enter into this Agreement. Executive further acknowledges that the consideration for this Section 6 is his employment or continued employment. Executive will not be paid any additional compensation for application or enforcement of the restrictive covenants contained in this Section 6.

(g) Work Product. The term “Work Product” includes any and all information, programs, concepts, processes, discoveries, improvements, formulas, know-how and inventions, in any form whatsoever, relating to the business or activities of the Company, or resulting from or suggested by any work developed by the Executive in connection with the Company, or by the Executive at the Company’s request. Executive acknowledges that all Work Product developed during the Term is property of the Company and accordingly, Executive does hereby irrevocably assign all Work Product developed by the Executive to the Company and agrees: (a) to assign to the Company, free from any obligation of the Company to the Executive, all of the Executive’s right, title and interest in and to Work Product conceived, discovered, researched, or developed by the Executive either solely or jointly with others during the term of this Agreement and for three (3) months after the termination or nonrenewal of this Agreement; and (b) to disclose to the Company promptly and in writing such Work Product upon the Executive’s acquisition thereof.

(h) Cooperation. During and subsequent to termination of the employment of the Executive, the Executive will cooperate with Company and furnish any and all complete and truthful information, testimony or affidavits in connection with any matter that arose during the Executive’s employment, that in any way relates to the business or operations of the Company or any of its subsidiary corporations, divisions or affiliates, or of which the Executive may have any knowledge or involvement; and will consult with and provide information to Company and its

 

16


representatives concerning such matters. Subsequent to the termination of the employment of the Executive, the parties will make their best efforts to have such cooperation performed at reasonable times and places and in a manner as not to unreasonably interfere with any other employment in which Executive may then be engaged. Nothing in this Agreement shall be construed or interpreted as requiring the Executive to provide any testimony, sworn statement or declaration that is not complete and truthful. If Company requires the Executive to travel outside the metropolitan area in the United States where the Executive then resides to provide any testimony or otherwise provide any such assistance, then Company will reimburse the Executive for any reasonable, ordinary and necessary travel and lodging expenses incurred by Executive to do so provided the Executive submits all documentation required under Company’s standard travel expense reimbursement policies and as otherwise may be required to satisfy any requirements under applicable tax laws for Company to deduct those expenses. Nothing in this Agreement shall be construed or interpreted as requiring the Executive to provide any testimony or affidavit that is not complete and truthful

 

SECTION 7. MISCELLANEOUS

(a) Notices . Notices and all other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail. Notices to the Company shall be sent to:

STEIN MART, INC

Attention: General Counsel

1200 Riverplace Boulevard, 10th Floor

Jacksonville, FL 32207

Facsimile: (904) 346-1297

Notices and communications to Executive shall be sent to the address Executive most recently provided to the Company.

(b) No Waiver . No failure by either the Company or Executive at any time to give notice of any breach by the other of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of any provisions or conditions of this Agreement.

 

17


(c) Governing Law . This Agreement shall be governed by Florida law without reference to the choice of law principles thereof.

(d) Assignment . This Agreement shall be binding upon and inure to the benefit of the Company and any successor in interest to the Company or any segment of such business. The Company may assign this Agreement to any affiliate or successor that acquires all or substantially all of the assets and business of the Company or a majority of the voting interests of the Company. The Company will require any successor (whether direct or indirect, by operation of law, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Company) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean Company as defined above and, unless the context otherwise requires, any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Executive’s rights and obligations under this Agreement are personal and shall not be assigned or transferred.

(e) Other Agreements . This Agreement replaces and merges any and all previous agreements and understandings regarding all the terms and conditions of Executive’s employment relationship with the Company, and this Agreement constitutes the entire agreement between the Company and Executive with respect to such terms and conditions.

(f) Amendment . No amendment to this Agreement shall be effective unless it is in writing and signed by the Company and by Executive.

(g) Invalidity and Severability . If any part of this Agreement is held by a court of competent jurisdiction to be invalid or otherwise unenforceable, the remaining part shall be unaffected and shall continue in full force and effect, and the invalid or otherwise unenforceable part shall be deemed not to be part of this Agreement.

(h) Litigation . In the event that either party to this Agreement institutes litigation against the other party to enforce his or its respective rights under this Agreement, each party shall pay its own costs and expenses incurred in connection with such litigation. As a material part of the consideration for this Agreement, BOTH PARTIES HERETO WAIVE ANY RIGHT TO A TRIAL BY A JURY in the event of any litigation arising from this Agreement. All legal actions arising out of or connected with this Agreement must be instituted solely in the Circuit Court of Duval County, Florida, or in the Federal District Court for the Middle District of Florida, Jacksonville Division, and all parties hereto do hereby agree to submit to the

 

18


exclusive personal jurisdiction of such courts. Each of the parties hereby expressly and irrevocably submits to the jurisdiction of such courts for the purposes of any such action and expressly and irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter may have to the laying of venue of any such action brought in any such court and any claim that any such action has been brought in an inconvenient forum. Notwithstanding the foregoing, in the event of litigation to enforce this Agreement following a Change of Control, the costs including reasonable attorneys’ fees and reasonable expenses of the prevailing party shall be paid by the party which did not prevail.

(i) Counterparts . This Agreement may be executed in counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF , the Company and Executive have executed this Agreement effective as of the Effective Date.

 

STEIN MART, INC.     EXECUTIVE
By:  

/s/ Jay Stein

   

/s/ D. Hunt Hawkins

Name:   Jay Stein    
Title:   Chief Executive Officer    
Date:   9/11/13     Date:   9/11/13

 

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SCHEDULE A

BENEFITS

 

1. Retirement Plan/Life Insurance/AD&D

The Executive shall be entitled to participate in all retirement plans and will be entitled to life insurance and AD&D benefits which other senior executives of the Company or affiliates of the Company are eligible.

 

2. Long-Term Disability

The Executive shall be entitled to participate in all Long-Term and Life Time Disability plans which other senior executives of the Company or affiliates of the Company are eligible.

 

3. Medical/Dental Benefits

The Executive shall be entitled to medical/dental benefits which other senior executives of the Company or affiliates of the Company are eligible.

 

4.

 

5. Benefit Plans

Executive’s eligibility to participate in the aforementioned Benefit Plans is subject to the terms and condition of the specific plan documents and any conflict between this Agreement and the plan documents shall be controlled by the terms of the plan. The Company reserves the right to amend, modify or cancel any of the benefit plans currently provided.

 

A-1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

The Board of Directors

Stein Mart, Inc.:

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-148007, 333-160248, 333-181933) of Stein Mart, Inc. of our report dated May 3, 2013 relating to the financial statements, which appears in this Form 10 K.

 

/s/ PricewaterhouseCoopers LLP

Jacksonville, Florida
April 15, 2014

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Stein Mart, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-148007, 333-160248, 333-181933) on Forms S-8 of Stein Mart, Inc. of our reports dated April 15, 2014, with respect to the consolidated balance sheet of Stein Mart, Inc. and subsidiary as of February 1, 2014 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the fiscal year ended February 1, 2014, and the effectiveness of internal control over financial reporting as of February 1, 2014, which reports appear in this 10-K.

Our report dated April 15, 2014 on the effectiveness of internal control over financial reporting as of February 1, 2014, expresses an opinion that Stein Mart, Inc. did not maintain effective internal control over financial reporting as of February 1, 2014 because of the effect of a material weakness on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states that a material weakness related to the design and effectiveness in the operation of controls that are intended to ensure that access to the retail management system and the related inventory data files was adequately restricted, has been identified and included in management’s assessment.

/s/ KPMG LLP

Jacksonville, FL

April 15, 2014

Certified Public Accountants

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jay Stein, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Stein Mart, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Stein Mart, Inc. as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Date:   April 15, 2014    

/s/ Jay Stein

      Jay Stein
      Chairman of the Board and Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gregory W. Kleffner, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Stein Mart, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Stein Mart, Inc. as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Date:   April 15, 2014    

/s/ Gregory W. Kleffner

      Gregory W. Kleffner
      Executive Vice President and Chief Financial Officer
      (Principal Financial Officer and Chief Accounting Officer)

Exhibit 32.1

Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chairman of the Board and Interim Chief Executive Officer of Stein Mart, Inc. (the “Company”), hereby certify that:

 

1. the Annual Report on Form 10-K of the Company for the 52 weeks ended February 1, 2014 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:   April 15, 2014    

/s/ Jay Stein

      Jay Stein
      Chairman of the Board and Chief Executive Officer

Exhibit 32.2

Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Executive Vice President and Chief Financial Officer of Stein Mart, Inc. (the “Company”), hereby certify that:

 

1. the Annual Report on Form 10-K of the Company for the 52 weeks ended February 1, 2014 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:   April 15, 2014    

/s/ Gregory W. Kleffner

      Gregory W. Kleffner
      Executive Vice President and Chief Financial Officer
      (Principal Financial Officer and Chief Accounting Officer)